[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]





                      COMPETITION IN THE PACKAGE 
                           DELIVERY INDUSTRY

=======================================================================

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 9, 2008

                               __________

                           Serial No. 110-203

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov

















                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
ROBERT WEXLER, Florida               RIC KELLER, Florida
LINDA T. SANCHEZ, California         DARRELL ISSA, California
STEVE COHEN, Tennessee               MIKE PENCE, Indiana
HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio                   STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota

            Perry Apelbaum, Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
















                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 9, 2008

                                                                   Page

                           OPENING STATEMENTS

The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Member, Committee on the Judiciary.....     1
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     2

                               WITNESSES

The Honorable George V. Voinovich, a U.S. Senator from the State 
  of Ohio
  Oral Testimony.................................................     4
  Prepared Statement.............................................     5
The Honorable Sherrod Brown, a U.S. Senator from the State of 
  Ohio
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
The Honorable Marcy Kaptur, a Representative in Congress from the 
  State of Ohio
  Oral Testimony.................................................    10
  Prepared Statement.............................................    13
The Honorable Michael R. Turner, a Representative in Congress 
  from the State of Ohio
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
The Honorable Betty Sutton, a Representative in Congress from the 
  State of Ohio
  Oral Testimony.................................................    18
  Prepared Statement.............................................    20
Mr. David Lee Fisher, Lieutenant Governor, State of Ohio
  Oral Testimony.................................................    22
  Prepared Statement.............................................    25
The Honorable David L. Raizk, Mayor, Wilmington, OH
  Oral Testimony.................................................    32
  Submitted Material.............................................    35
Mr. John P. Mullen, CEO, DHL Express
  Oral Testimony.................................................    70
  Prepared Statement.............................................    73
Mr. Burt Wallace, Senior Vice President of Corporate 
  Transportation, UPS
  Oral Testimony.................................................    87
  Prepared Statement.............................................    89
Mr. David Ross, President, Teamsters Local 224, on behalf of the 
  Pilots of ABX Air
  Oral Testimony.................................................    93
  Prepared Statement.............................................    95
Mr. John Prater, President, Air Line Pilots Association, 
  International
  Oral Testimony.................................................    98
  Prepared Statement.............................................   100
Mr. David A. Balto, Attorney at Law
  Oral Testimony.................................................   107
  Prepared Statement.............................................   109

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas.............   141
Prepared Statement of the Honorable Barack Obama, a U.S. Senator 
  from the State of Illinois.....................................   143

 
                      COMPETITION IN THE PACKAGE 
                           DELIVERY INDUSTRY

                              ----------                              


                       TUESDAY, SEPTEMBER 9, 2008

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 2:12 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Steve 
Cohen (acting Chairman of the Committee) presiding.
    Present: Representatives Conyers, Delahunt, Cohen, Johnson, 
Sutton, Gutierrez, Sherman, Wasserman Schultz, Smith, Coble, 
Goodlatte, Chabot, Keller, Issa, Forbes, King, and Jordan.
    Staff Present: Perry Apelbaum, Staff Director and Chief 
Counsel; Anant Raut, Majority Counsel; Brandon Johns, Majority 
Staff Assistant; Sean McLaughlin, Minority Chief of Staff and 
General Counsel; and Stewart Jeffries, Minority Counsel.
    Mr. Cohen. This hearing of the Judiciary Committee will 
come to order.
    The proposed agreement between the package delivery 
companies, UPS and DHL, whereby UPS would provide DHL with all 
air transport for DHL packages, raises a number of concerns. 
First, does this proposed agreement violate the Federal 
antitrust laws?
    I fully expect the witnesses from DHL and UPS will tell us 
that there is no need to be concerned because nothing has been 
finalized yet. Each has huge teams of lawyers working on the 
language of their agreement, but we are worried about it. Any 
transaction in which one of the package delivery company's 
entire air service is provided by a competitor must be viewed 
with a heavy dose of skepticism. It is incumbent upon the 
contracting parties to satisfy us that it would not be 
anticompetitive. What specific terms are being incorporated 
into this agreement to allay our concerns?
    Second, what will be the impact on Ohio workers? The City 
of Wilmington and the State of Ohio invested a considerable 
amount of time and resources in providing DHL with a first-
class sorting facility. Since 2004, the State of Ohio has 
offered DHL approximately $400 billion in direct and indirect 
financial assistance and incentives, including tax credits and 
the construction of a highway bypass. Between the employees of 
DHL and its two carrier airlines, ASTAR and ABX, nearly 10,000 
jobs across 41 counties are at stake. What is going to happen 
to these people if DHL decides to suddenly leave town? What 
kind of strain will this put on Ohio social services if 10,000 
residents wake up tomorrow without a job?
    Third, after this transaction, air transport in the package 
delivery industry will essentially be consolidated in the hands 
of two players, UPS and FedEx. When competition increases, 
consumers win. When competition decreases, consumers absolutely 
lose.
    Right now, if you need express delivery of a package, you 
have four options--FedEx, UPS, DHL or the Postal Service. The 
Postal Service already outsources most of its air transport to 
FedEx. If DHL outsources its air transport to UPS, what is to 
stop UPS and FedEx from raising prices across the board for 
express delivery packages? Businesses that require high-volume 
shipping will be stuck.
    New, nationwide package delivery services don't just appear 
overnight. And these costs will inevitably get passed along to 
consumers who in these times don't have a lot of extra cash 
lying around. With those remarks, which are also the remarks of 
Chairman Conyers, who, I notice, is here and who notices that I 
am here, I give proper accord to his positions.
    And now I'd like to recognize the Ranking minority Member, 
Lamar Smith, for an opening statement.
    Mr. Smith. Mr. Chairman, thank you for calling this hearing 
today regarding the proposed deal between DHL and UPS for air 
transport. This is a second hearing in 2 months, the first 
being the agreement between Google and Yahoo about a nonmerger-
related agreement between competitors; and I appreciate your 
willingness to assert the Committee's jurisdiction in these 
matters.
    On May 28, 2008, DHL, which is a unit of Deutsche Post 
WorldNet, announced a restructuring of its U.S. express 
business. Deutsche Post, which had a minority ownership stake 
in DHL dating back to the late 1990's, reached 100 percent 
ownership in the company in 2002. Late that same year, DHL 
acquired its competitor, Airborne Express. Because a 
restriction was on the foreign ownership of U.S. airlines, 
DHL's air carriers, ABX, the former Airborne Express, and 
ASTAR, the former DHL, were created as separate companies with 
whom DHL had a contractual arrangement. The two airlines flew 
out of Wilmington, Ohio, a town of about 12,000 in southwest 
Ohio.
    In the last couple of years, DHL's North American business 
and, in particular, its air transport business has suffered 
large losses, even though the parent company's worldwide 
profits were quite large. The reorganization announced in May 
2008 involves DHL's outsourcing its entire airfreight business 
to its rival, UPS.
    A DHL customer will still interact with a DHL driver at 
pickup. However, instead of going to Wilmington, Ohio, the DHL 
vans will now head to Louisville, Kentucky, where UPS operates 
its air hub. A UPS plane will then transport the package to its 
destination city, where a DHL van will deliver the package.
    DHL estimates that this new arrangement will save the 
company as much as $1 billion annually. It will, however, 
result in the layoffs of almost 7,000 employees in Wilmington, 
Ohio. Conversely, UPS will receive as much as $1 billion in new 
revenue and will increase its presence in the Louisville area 
to compensate for the increased demand on its airline.
    Other carriers, such as FedEx and the U.S. Postal Service, 
have agreements that allow for the transport of some packages 
on a competitor's planes. However, this will likely be the 
first time that a major shipping company has outsourced its 
entire airfreight capacity to a rival.
    As of today's hearing, UPS and DHL have not reached a 
formal agreement. Because this is not a merger, the companies 
are not required to receive approval of the arrangement from 
the Department of Justice or Federal Trade Commission. However, 
it is my understanding the companies will provide the agreement 
to the Department of Justice once the contract is finalized.
    Unlike Google and Yahoo, it is my understanding that the 
parties will not delay implementation of the agreement until 
after DOJ has completed its review. Like Google and Yahoo, the 
question of whether this agreement harms competition will turn 
in large measure on the terms of the contract. Under that 
contract, will UPS have an incentive to discriminate against 
DHL's packages when it prioritizes items for delivery? Will UPS 
gain access to sensitive pricing or customer information that 
will give it an advantage over DHL?
    The Department of Justice will also have to consider the 
likely fate of DHL as a stand-alone competitor in the United 
States absent this deal; that is, if this deal is all that 
prevents DHL from going out of business, then it may be worth 
allowing this deal to go through so as to preserve a strong 
third competitor against UPS and FedEx.
    These are complicated factual questions and are 
unanswerable at this point because the parties have not 
finalized any agreements.
    I am aware that this deal has been very controversial in 
Ohio and for good reason. The loss of 7,000 jobs would severely 
impact the town of Wilmington located in Congressman Michael 
Turner's district. To that end, I am happy that we will be 
hearing from so many distinguished members from the Ohio 
delegation today. And both Presidential candidates have 
discussed the issue on the campaign trail as well.
    While the political ramifications of this agreement cannot 
be ignored, I hope this Committee will focus on the subject of 
its jurisdiction, namely the possible impact on consumers of 
such a transaction.
    Mr. Chairman, I look forward to the hearing and hearing 
from our witnesses and thank you again for calling it on this 
subject.
    Mr. Conyers. [Presiding.] Thank you, Mr. Smith.
    I am so delighted we have one, two, three, four, five 
Members of the Senate and the House here. And I notice Betty 
Sutton, our distinguished Member of the Committee, is with us. 
In addition, there is Michael Turner himself and, of course, my 
dear friend Marcy Kaptur, whose district is only 54 miles from 
ours. So she is in the Detroit Labor Day parade as much as I 
am. And, of course, Sherrod Brown, who has served us in the 
House for so many years before he was elevated to the Senate.
    And we begin with the senior Senator from Ohio, the 
Honorable George Voinovich. Since 1999, he has served in the 
United States Senate with great distinction. And we are 
delighted you are all here. All your statements will be 
included in the record.
    And might I invite the senior Senator to begin our 
discussion this afternoon. Welcome to the Judiciary Committee, 
sir.
    Mr. Voinovich. Thank you, Mr. Chairman.
    Mr. Conyers. Press your button. We are high tech here. You 
have got to press the right buttons.
    All right, we are low tech here. Where are the engineers? 
This is so embarrassing. Our visitors come from the other body 
and what do we do? I assure you this was an accident, ladies 
and gentlemen.

        TESTIMONY OF THE HONORABLE GEORGE V. VOINOVICH, 
             A U.S. SENATOR FROM THE STATE OF OHIO

    Mr. Voinovich. Mr. Chairman, thanks for this opportunity, 
sir, for having this hearing. It will examine competition in 
the package delivery industry--here we go--including the 
competitive impacts of the proposed agreement between DHL 
Express U.S., its parent Deutsche Post WorldNet--collectively, 
DHL--and the United Parcel Service, Inc.
    I am pleased that the Committee will spend time reviewing 
the competitive situation in this industry. I believe 
activities like this hearing, as well as what I anticipate will 
be a review of the proposed DHL-U.S.A. agreement by the 
Department of Justice Antitrust Division, will reveal why a 
DHL-UPS agreement is likely to result in consumer harm and an 
unnecessary loss of jobs and an uprooting in the lives of 
thousands of families in Ohio.
    There is a saying that trying times bring out the best in 
people, and that has certainly been the case with the DHL 
situation. I have been very proud of the way Ohio's political 
leaders have worked together to bring attention to the DHL 
situation, which is evidenced by the presence of Senator Brown, 
Senator Turner--Congressmen Turner, Sutton and Kaptur. And our 
lieutenant governor is here today.
    Each of us recognizes the devastating impact that the loss 
of 7,000 jobs will have on the Wilmington community. Families 
will struggle to pay their mortgages, save for their children's 
education and ensure their retirements. In news reports, DHL 
and UPS characterize their agreement as nothing more than a 
consumer-vendor agreement that raises no antitrust issues.
    The proposed DHL-UPS agreement, however, is not a 
theoretical consumer-vendor agreement, nor is it a typical 
agreement. This agreement will result in DHL becoming heavily 
dependent on one of its closest competitors for a key component 
of its service, the airlift that moves overnight letters and 
packages around the country, and will result in DHL's sharing 
critical and competitively sensitive information with UPS when 
UPS handles DHL's packages.
    The company has also claimed they have not yet entered into 
this agreement; thus, there is no need to worry about the 
competitive implications. Unfortunately, if DHL and UPS 
complete an agreement, which both companies agree does not 
require a review under the Hart-Scott-Rodino Antitrust 
Improvements Act, then any government antitrust review would 
occur after the agreement went into effect after ABX and ASTAR, 
the airlines that currently provide airlift service for DHL, 
significantly scale back their operations, shedding workers, 
planes and abandoning Wilmington, Ohio, from which they 
operate. If this occurs, it would be nearly impossible to 
return the market to the situation as it exists today.
    I know the Committee is aware that the very purpose of the 
Hart-Scott-Rodino Act was to avoid situations where two parties 
enter into agreement without adequate review that would 
irreversibly harm competition. Because the DHL-UPS agreement 
does not require Hart-Scott-Rodino Act notification and review, 
there is a significant role for Congress and the Antitrust 
Division to act proactively to ensure that competition is 
protected.
    Whenever there is a concerted effort between or among 
competitors, special caution must be taken to ensure that 
competition is maintained. Because the DHL and UPS agreement 
will require DHL to relinquish cost and quality control over 
its business to UPS and allow UPS to gain information about DHL 
customers, any DHL-UPS agreement raises significant antitrust 
issues under the Sherman Act.
    As discussed in the Antitrust Division's and Federal Trade 
Commission's antitrust guidelines for collaborations among 
competitors, an agreement that limits the independent decision 
making or combines control over key assets is prone to result 
in situations that reduce the ability or incentive for 
competition and may increase the likelihood of an exercise of 
market power by facilitating explicit or tacit collusion. A 
DHL-UPS agreement will result in DHL's surrendering cost and 
quality control to UPS over a significant part of its U.S. 
operation, resulting in just the sort of competitive harm DOJ, 
FTC, JB guidelines raise. Moreover, if DHL adopts the UPS 
package tracking and labeling system, it appears UPS will gain 
competitive information about DHL's customers. As a result, 
such an agreement should be scrutinized closely by this 
Committee and other Committees and the Antitrust Division.
    Mr. Chairman, thank you very much for allowing me to 
testify today.
    [The prepared statement of Mr. Voinovich follows:]
       Prepared Statement of the Honorable George V. Voinovich, 
                 a U.S. Senator from the State of Ohio
                              introduction
    Chairman Conyers, Ranking Member Smith, and Committee members, good 
afternoon and thank you for this opportunity to testify before you at 
this important hearing, which will examine competition in the package 
delivery industry, including the competitive impacts of the proposed 
agreement between DHL Express U.S., its parent Deutsche Post World Net 
(collectively ``DHL''), and United Parcel Service, Inc. (``UPS''). I am 
pleased that the Committee will spend time reviewing the competitive 
situation in this industry. I believe activities like this hearing, as 
well as what I anticipate will be a review of the proposed DHL/UPS 
agreement by the Department of Justice Antitrust Division (``Antitrust 
Division''), will reveal why the DHL/UPS agreement is likely to result 
in consumer harm, an unnecessary loss of jobs, and uprooting the lives 
of thousands of families in Ohio.
    Before I turn to the specific topic of this hearing, I would like 
to say a few words about the efforts of the Ohio delegation relating to 
the DHL/UPS situation. There is a saying that trying times bring out 
the best in people--and that has certainly been the case with the DHL 
situation and the Ohio Congressional delegation's reaction. I have been 
very proud of the way Ohio's community and public leaders have come 
together to ensure that competition in this industry is maintained and 
the Wilmington community is treated fairly. This unity is evidenced by 
the presence of Senator Brown, Mr. Turner, Ms. Sutton, Ms. Kaptur, 
Lieutenant Governor Fisher, and Wilmington Mayor Raisk at this hearing. 
We all recognize the devastating impact that the loss of roughly 8,000 
jobs will have on the Wilmington community. Families will struggle to 
pay their mortgages, save for their children's education, and ensure 
their retirements.
                         the dhl/ups agreement
    When DHL first announced that it intended to partner with UPS, I 
met with the head of DHL's North American Operations, John Mullen, and 
needless to say, I expressed my disappointment and concern about the 
transaction. Ohio and Wilmington made a commitment to DHL, and now DHL 
is not willing to work with the Ohio stakeholders to help the company 
solve its financial issues. Instead, DHL will try to resolve its 
financial issues by completing an agreement with one of its closest 
competitors.
    In news reports, DHL and UPS characterize their agreement as 
nothing more than a customer-vendor supply agreement that raises no 
antitrust issues. The companies maintain there is nothing 
anticompetitive about such a customer-vendor agreement, and in the 
abstract, I would tend to agree. However, the proposed DHL-UPS 
agreement is not a theoretical customer-vendor agreement, nor is it a 
typical agreement. Rather, this agreement will result in DHL becoming 
heavily dependent on one of its closest competitors for a key component 
of its service--the airlift that moves overnight letters and packages 
around the country. In addition, the agreement will inevitably result 
in DHL sharing critical and competitively sensitive information with 
UPS when UPS handles DHL's packages.
    The companies also claim that they have not yet entered into an 
agreement; thus, there is no need to worry about the competitive 
implications. Unfortunately, such logic does not hold up under 
scrutiny. If DHL and UPS complete an agreement, which both companies 
have agreed does not require review under the Hart-Scott-Rodino 
Antitrust Improvements Act (``HSR Act''), then any government antitrust 
review would occur after the agreement went into effect and after the 
likely competitive harm has permanently changed the competitive 
landscape. The airlines that currently provide airlift service for DHL, 
ABX and ASTAR, will likely scale back quickly, shedding workers, 
planes, and abandoning the Wilmington, Ohio facility from which they 
operate. If this sort of change occurs and later the Antitrust Division 
finds competitive issues with the DHL/UPS agreement, then it would be 
nearly impossible to return the market to the situation as it exists 
today.
    I know this Committee is aware that the very purpose of the HSR Act 
was to avoid situations where two parties enter into an agreement that 
would irreversibly harm competition. That is, the HSR Act was designed 
to avoid situations in which the egg cannot be unscrambled. The HSR 
Act, however, does not apply to every agreement that raises antitrust 
issues. Nevertheless, there is a significant role for Congress and the 
Antitrust Division to ensure that competition and consumers are 
protected against the harms that could ensue from agreements, such as 
the DHL/UPS agreement, that are not reported under the HSR Act.
            any dhl/ups agreement raises competitive issues
    Section 1 of the Sherman Antitrust Act (``Sherman Act'') makes 
contracts in restraint of trade unlawful. Whenever there is a concerted 
activity between or among competitors, special caution must be taken to 
ensure competition is maintained. Because the DHL/UPS agreement will 
require DHL to relinquish cost and quality control over its business to 
UPS and allow UPS to gain information about DHL's customers, any DHL/
UPS agreement raises significant antitrust issues under the Sherman 
Act.
    As discussed in the Antitrust Division and Federal Trade 
Commission's (``FTC'') Antitrust Guidelines for Collaborations Among 
Competitors (the ``DOJ/FTC JV Guidelines''), an agreement that limits 
the independent decision-making or combines control over key assets is 
prone to result in situations that ``reduce the ability or incentive 
[for competitors] to compete independently'' and ``may increase the 
likelihood of an exercise of market power by facilitating explicit or 
tacit collusion.''
    A DHL/UPS agreement will likely result in DHL surrendering cost and 
quality control to UPS over a significant part of its U.S. operations 
resulting in just the sort of competitive harm the DOJ/FTC JV 
Guidelines anticipate. Moreover, if DHL adopts UPS's package tracking 
and labeling system, it appears UPS will gain competitive information 
about DHL's customers. As a result, such an agreement should be 
scrutinized closely to ensure that it does not lead to consumer harm in 
terms of increased costs or decreased services.
                              1conclusion
    Thank you for allowing me to testify today, and I look forward to 
continuing my work with the state of Ohio and my colleagues in the 
entire Ohio Congressional delegation. I want to thank this Committee 
for its willingness to provide the necessary oversight of the 
competitive environment in the package delivery industry.

    Mr. Conyers. Thank you for your opening comments, Senator 
Voinovich.
    We are always glad to see Sherrod Brown, now a Member, as 
we say, of the other body, but we still remember him fondly for 
his work. Now he is an author and sometimes Members of the 
Committee; they wonder if we are--have you written a book 
lately, another book lately?
    Mr. Brown. No. A couple a while ago, but not----
    Mr. Conyers. Well, there are some Members----
    Mr. Brown. When I was in the minority in the House, I had a 
little more time.
    Mr. Conyers. We are happy to have you here. Welcome.

           TESTIMONY OF THE HONORABLE SHERROD BROWN, 
             A U.S. SENATOR FROM THE STATE OF OHIO

    Mr. Brown. Thank you, Mr. Chairman.
    And Ranking Member Smith, nice to see you. Thank you very 
much.
    And when I walked in and saw Mr. Cohen sitting in the 
chairman's seat, I just thought, 14 years in the House, I never 
got to sit there. I come back 2 years later, things have--I 
just don't understand that.
    But thank you. And special thanks to the whole Committee, 
especially the chairman and the Ranking Member, and to all 
those in Ohio and around the country that have been so helpful 
in this issue.
    I cite the work of my colleague, Senator Voinovich. I cite 
especially the work of Congressman Turner and what Mayor Raizk 
has done in Wilmington. I particularly thank Marcy Kaptur and 
Betty Sutton, sitting on the panel, and those Members, Steve 
Chabot and Jim Jordan, who have shown interest way beyond the 
confines of their districts. This is a southwest Ohio issue, 
but it is bigger than that, a State issue, and even bigger than 
that, obviously a national issue. I particularly also 
appreciate the work that Captain David Ross and the Teamsters 
have done; and the governor, Governor Strickland, and 
Lieutenant Governor Fisher, and more on that in a minute.
    In addition to Ohio's congressional delegation and State 
leaders, Senators Herb Kohl and Orrin Hatch, the Chair and 
Ranking Member of the Antitrust Subcommittee, have asked the 
Justice Department to investigate the proposed transaction. 
Senator Voinovich and I are particularly appreciative of that.
    This is a national issue, of course, as evidenced by both 
Senator McCain and Senator Obama's requesting an antitrust 
review and monitoring this situation. The proposed transaction 
between DHL Worldwide Express and United Parcel Service would 
result in DHL's becoming almost entirely dependent on its main 
competitor, UPS, to deliver its packages. It may cause serious 
harm to competition in the U.S. Air express package delivery 
market.
    This DHL-UPS proposal, as we have heard, puts more than 
8,000 jobs in Ohio at risk, forcing those Ohioans, their 
families, the communities in which they live to endure 
unrelenting financial uncertainty. The lack of competitive 
pricing will affect consumers all over the country. If the DHL-
UPS deal breaks antitrust rules, we need to know that, we need 
to know it quickly. If this deal is actually finalized, DHL 
will rely on its competitor for a critical element of its 
service, its airlift. That sounds simple enough, but what does 
that mean?
    Well, it is a lot more than one set of planes or another. 
As Mr. Smith's opening statement put out questions that we need 
to answer, here are some others. Whose system do you use? Will 
there be DHL or UPS bar codes on the package? Will customer and 
pricing information be shielded from UPS? What prevents a price 
squeeze since UPS has control of DHL's wholesale operations? 
When the Christmas rush comes, whose packages will move first 
if cargo capacity is strained? And finally, what prevents UPS 
from using its control of DHL's airlift to marginalize DHL as a 
competitor?
    Congress needs to better understand what this proposed deal 
would mean for free market competition. DHL will tell you its 
been losing a billion dollars a year. That justifies changes to 
the company, not to the market in which it functions. 
Competitive pricing, consumer choice are the hallmarks of a 
functioning market. They must be preserved.
    This proposed deal teaches a lesson in corporate 
responsibility or the lack thereof. The final result may leave 
a mark on how our government regulates foreign investment when 
it comes to aviation. I am referring to the U.S.-EU Open Skies 
Initiative, which aims to loosen existing restrictions on EU 
air carriers operating in our great country. Its proponents 
claim that deal will create thousands of U.S. jobs and benefits 
our Nation's economy enormously.
    Mr. Chairman, we have heard that before. When DHL moved to 
Ohio, it promised to boost competition in the air carrier 
market. It promised to create thousands of good-paying jobs. It 
promised, of course, to benefit Ohio's economy enormously. When 
DHL bought Airborne in 2003 and decided to headquarter its 
airlift operations in Wilmington, our State, of course, 
welcomed the deal. In fact, the city of Wilmington and Mayor 
Raizk, Clinton County, and the State of Ohio produced an 
incentive package including nearly $80 million in direct tax 
benefits for DHL and several infrastructure projects and up to 
$400 million in indirect benefits. Sales of yellow and red 
paint must have tripled as DHL's logo is everywhere throughout 
the region, and DHL's name from the All-Star Game to local 
billboards quickly became a source of pride throughout our 
State. But now Ohio stands to lose 8,000 jobs directly--
thousands more, as Senator Voinovich said, if you count other 
jobs in the community.
    I have done roundtables in Wilmington, listened to the 
mayor talk about what it means to police and fire, listened to 
hospital administrators talk about what it means to their 
ability to deliver medical care in this community in Highland 
County and Montgomery County and all over the region.
    I am particularly disturbed by DHL's unwillingness to fully 
review alternative proposals that would prevent so many jobs 
from being eliminated. That justifies changes--again, DHL says 
it is losing a billion dollars in the U.S. market. That 
justifies changes to the structure, and Governor Strickland and 
Lieutenant Governor Fisher and our delegation have shown 
willingness to adapt. We simply ask the company to give a fair 
opportunity to other proposals, including from ABX Air.
    We have been willing to discuss creative solutions. We have 
been met with silence.
    Mr. Chairman, the story does not have to end this way. I 
ask Mr. Mullen and Mr. Appel of Deutsche Post in Germany to 
negotiate in good faith an alternative structure that keeps as 
many jobs as possible in my State. It would take genuine 
courage for DHL to reconsider its plan with UPS and figure out 
a solution that works for the community as well as the company 
and its customers. Workers in Wilmington and throughout Ohio 
would applaud that courage.
    Thank you for the opportunity to share my views.
    [The prepared statement of Mr. Brown follows:]
          Prepared Statement of the Honorable Sherrod Brown, 
                 a U.S. Senator from the State of Ohio
    Thank you, Chairman Conyers and Ranking Member Smith. I'd like to 
also acknowledge Mayor David Raizk of Wilmington who will testify 
today. Thank you for your leadership in handling this enormous issue.
    Before I begin, I'd like to say a word about the efforts and 
coordination between local, county, state and federal officials. From 
the city council to the White House, our public officials have 
recognized the substantive and financial risks posed by this deal. I'm 
grateful for the unity in our delegation and the responsiveness from 
members of Congress in both chambers.
    In addition to Ohio's congressional delegation and state leaders, 
Senator Herb Kohl and Senator Orrin Hatch, the Chair and Ranking 
Members of the Antitrust Subcommittee, have asked the Justice 
Department to investigate the proposed transaction.
    Indeed, this is a national issue, as evidenced by both Democrat and 
Republican presidential candidates requesting an antitrust review and 
monitoring the situation.
    The proposed transaction between DHL Worldwide Express and United 
Parcel Service (UPS) would result in DHL becoming almost entirely 
dependent on its main competitor--UPS--to deliver its packages. It may 
cause serious harm to competition in the U.S. air express package 
delivery market.
    This DHL-UPS proposal puts more than 8,000 jobs in Ohio at risk, 
forcing those Ohioans, their families, and the communities in which 
they live to endure unrelenting financial uncertainty.
    The lack of competitive pricing will affect consumers all around 
the country.
    If the DHL-UPS deal breaks antitrust rules, we need to know that, 
and we need to know it quickly. If this deal is actually finalized, DHL 
will rely on its competitor, UPS, for a critical element of its 
service--its air lift.
    That sounds simple enough, but what does that mean? Well, it's a 
lot more than one set of planes or another.
    The sorting and tracking functions are highly automated. Whose 
system do you use? Will there be DHL or UPS bar codes on the package? 
Will customer and pricing information be shielded from UPS? What 
prevents a price squeeze since UPS has control of DHL's wholesale 
operations? When the Christmas rush comes, whose packages will move 
first if cargo capacity is strained?
    I'm certainly not an expert on these topics, but what prevents UPS 
from using its control of DHL's airlift to marginalize DHL as a 
competitor? These are some of the questions that arise and probably 
just scratch the surface.
    Congress needs to better understand what this proposed deal would 
mean for free market competition. In my view, it can only mean trouble.
    DHL will tell you it has been losing $1 billion per year. That 
justifies changes to the company, not to the market in which it 
functions.
    Competitive pricing and consumer choice are the hallmarks of a 
functioning market. They must be preserved.
    The ripple effects of this proposed deal, if it goes forward, would 
reach beyond the financial hardship it will create in Ohio. This 
proposed deal may teach us a lesson in corporate responsibility, or the 
lack thereof. The final result may leave a mark on how our government 
regulates foreign investment when it comes to aviation.
    I'm referring to the U.S.-EU Open Skies Initiative, which aims to 
loosen existing restrictions on EU air carriers operating in our 
country. Its proponents claim that deal will create thousands of U.S. 
jobs, and benefit our nation's economy enormously.
    Ohioans have heard this before, just five years ago. When DHL moved 
to Ohio, it was going to boost competition in the air carrier market, 
create thousands of good paying jobs, and benefit Ohio's economy 
enormously.
    When DHL Express bought Airborne Express in 2003 and decided to 
headquarter its airlift operations in Wilmington, our state welcomed 
the deal. In fact, the City of Wilmington, Clinton County, and state of 
Ohio produced an incentive package including nearly $80 million in tax 
benefits for DHL and several infrastructure projects. Sales of yellow 
and red paint must have tripled as DHL's logo was everywhere throughout 
the region, and DHL's name quickly became a source of pride throughout 
our state.
    Despite millions in financial incentives to DHL, the company has 
not gained market share. When DHL purchased Airborne Express in 2003, 
it had 18 percent market share. By 2007, DHL's market share dwindled to 
about 7 percent. Now, Ohio stands to lose 8,000 jobs directly--and 
thousands more if you count other jobs in the community.
    I am particularly disturbed by DHL's unwillingness to fully review 
alternative proposals that would prevent so many Ohio jobs from being 
eliminated.
    Again, DHL says it is losing $1 billion in the U.S. market. That 
justifies changes to the structure, and Governor Strickland, Lt. 
Governor Fisher and the Ohio congressional delegation have shown 
willingness to adapt. We have asked the company to give a fair 
opportunity to other proposals, including from ABX Air. We have been 
willing to discuss creative solutions. We have been met with silence.
    The story does not have to end this way. I just ask Mr. Mullen, and 
Mr. Appel of Deutsche Post, to negotiate in good faith an alternative 
structure that keeps as many jobs as possible in Ohio.
    It would take genuine courage for DHL to reconsider its plan with 
UPS, and figure out a solution that works for the community, as well as 
the company and its customers. Workers in Wilmington and throughout 
Ohio would honor that courage.
    Thank you for the opportunity to share my views and for the 
Committee's commitment to examining this proposal. I look forward to 
continuing to work with the city of Wilmington, the state of Ohio and 
federal officials in fighting for these jobs.

    Mr. Conyers. Thank you, Senator Brown.
    Congresswoman Marcy Kaptur has worked with this Committee 
and with its chairman across the years. We are neighbors, 
nearly contiguous districts, even in different States. And she 
has helped me become an infrequent visitor and lecturer at the 
Toledo School of Law.
    And we are happy to have you here again today.

           TESTIMONY OF THE HONORABLE MARCY KAPTUR, 
      A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

    Ms. Kaptur. Thank you, Mr. Chairman, so very much for the 
opportunity to appear here with our colleagues.
    And I want to thank you personally for your leadership to 
bring us together today with your Ranking Member, Mr. Smith, 
and Members of the full Committee; and also to say up front 
that we appreciate all the attention that you are giving to 
this devastating proposal that DHL, a German government-owned 
corporation and its competitor, UPS, are pursuing.
    I want to thank our colleagues from Ohio, Congressmen 
Turner and Sutton, as well as Senators Brown and Voinovich and 
our lieutenant governor, Lee Fisher, who is with us today, as 
well as the mayor of Wilmington, David Raizk, who I know is in 
the audience and will likely be testifying as well. It is 
important that we shine light for the country on this issue and 
its expected harm to our economy, our State, and our country.
    The question for the Committee is, should the United States 
allow this de facto merger between DHL and UPS to go forward 
without scrutiny? More good Ohio jobs are likely to be lost, 
communities washed out, and consumers across our country, as 
well as world customers, subjected to higher prices because of 
reduced competition.
    This deal is being constructed as an attempt to escape 
regulatory oversight, to expedite the consolidation of an 
already heavily consolidated industry.
    Let me just place on the record: This is a package delivery 
industry that has been making money. In 2007, overall, 32.8 
billion--that is with a ``b''--billion dollars was taken in in 
annual revenues. Now, FedEx got about 42.7 percent of that, 
$14.02 billion. $14.02 billion is about as much as we spend in 
an annual year to fund NASA. The United Parcel Service earned 
10.6 billion; they had about a 32 percent share of the market. 
DHL, 2.8 billion in revenues, about 8.5 percent, so they 
weren't one of the two big players, but they weren't 
insignificant with--2 billion is a lot more than most small 
businesses in my district make. And the Postal Service had 950 
million, small kid on the block, with about 2.9 percent of the 
package delivery business. And then other competitors held 
about $4.45 billion. So we are talking about big fish in the 
ocean here.
    In Ohio, I might just say--I am sure you already know it--
we have lost hundreds of thousands of good-paying jobs with 
benefits, certainly since the implementation of lopsided trade 
agreements like NAFTA. But the UPS-DHL proposal is merely one 
more corporate dispossession of workers in communities that are 
the backbone of our economy.
    If this arrangement goes through, it is estimated at least 
8,000 Ohio jobs are on the short list for elimination and tens 
of thousands of supporting jobs in Wilmington, Ohio, and 
surrounding counties.
    Wilmington itself is a town of 13,000 people. It may not 
survive the fatal blow of an abandoned facility that displaces 
such a vast workforce. Indeed, as we examine the recent history 
of UPS and DHL, we see that job losses and abandoned facilities 
are likely. When UPS acquired Emery Worldwide in 2004, 
operating at the Dayton airport, UPS left the facility vacant 
with 1,200 people unemployed without wages or health insurance. 
That is a huge job loss by anybody's calculation. And then when 
DHL acquired Airborne Express, DHL left the Cincinnati airport 
with unused facilities. I know that Congressman Chabot knows 
that story well.
    If these two package giants merge air operations, we can 
expect that the Wilmington facility will suffer a similar fate, 
despite the hundreds of millions of dollars of taxpayer money 
that DHL asked the State of Ohio to invest in infrastructure to 
support its operations. Not only will the people of 
southwestern Ohio be hit hard, but also so will consumers 
nationwide and likely worldwide.
    Eliminating DHL from the express overnight shipping market 
will leave just two companies, UPS and FedEx. This further 
reduces competition with likely higher prices for you, for me, 
and for everyone. Furthermore, the possibility that this 
alliance will extend to Asian and European operations is merely 
a step ahead.
    I urge your Committee to investigate this proposal both in 
terms of its antitrust implications, but also the impact that 
it will have on Wilmington and the State of Ohio as a whole.
    It is no secret that Senator Obama has visited Wilmington, 
as well as Senator McCain. We need to have this on everyone's 
radar. If we allow these types of megabusiness arrangements 
with little regulation or regard, we can expect other companies 
will feel comfortable abandoning communities all in the name of 
higher corporate profits. But at whose expense? When is big too 
big? And when does big become anticompetitive?
    Since national corporations cannot be allowed to forgo 
their duties to fulfill promises such as those DHL made to the 
city of Wilmington and the State of Ohio--they promised to be a 
long-term presence and enhance competition, not detract from 
it--it appears that we can no longer count on corporations 
keeping their word or our ability to ensure a return on our 
State's investments.
    Congress's most important responsibility is to represent 
our people, not just the interests of huge corporations. I am 
here to speak on behalf of workers who will be forced out of 
jobs and left without health care. I know that Captain David 
Ross is here, President of the Teamsters Local 1224 and 
representing the pilots of ABX Air. I hope they will be given 
an opportunity to testify as well. We speak on behalf of 
students and our schools that will be underfunded because of 
the potential loss of tax revenue, and communities who will be 
harmed by pending facility closures.
    In closing, Mr. Chairman and Members, thank you for giving 
us the opportunity to bring to you and to the Committee's 
attention the plight of our people in communities who will be 
abandoned if DHL is allowed to break its commitment to the 
State of Ohio and to the people of Wilmington. And most of all, 
thank you for meeting the responsibilities of your Committee. 
Thank you.
    [The prepared statement of Ms. Kaptur follows:]
           Prepared Statement of the Honorable Marcy Kaptur, 
          a Representative in Congress from the State of Ohio



    Mr. Conyers. Thanks, Marcy Kaptur.
    Now the former mayor of Dayton, Ohio, now serving several 
terms in the House of Representatives, the Honorable Michael 
Turner, who is a very active Member of this 110th Congress. 
Welcome to the House Judiciary Committee.

         TESTIMONY OF THE HONORABLE MICHAEL R. TURNER, 
      A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 0HIO

    Mr. Turner. Thank you, Mr. Chairman.
    Thank you, Ranking Member Smith.
    Mr. Chairman, I thank you for holding this hearing on what 
really is an important issue for the U.S. economy. And I thank 
the Members of the Committee for their attention and their 
scrutiny of this transaction, Senator Brown and Senator 
Voinovich, and I thank Congresswoman Kaptur and Sutton for 
coming together to support an issue that affects Ohio. This has 
been a bipartisan issue in our State, and we greatly appreciate 
your reviewing it today, Mr. Chairman.
    Wilmington, Ohio, is in my district, the Third District of 
Ohio, so I want to speak a moment about the people of the Third 
District who will be impacted by this transaction.
    This facility is not closing because of them. They are 
hardworking, professional, and committed. The facility that is 
subject to possible closure was operated prior to DHL's 
acquisition without a loss. However, the people will be 
impacted, professions will be lost, homes are at risk, dreams 
are at risk, the ability to send children to college is at 
risk. In a nine-county area around Wilmington, Ohio, people 
send family members to this facility in order to obtain health 
insurance. Family farms and small businesses that depend on 
that health insurance will be impacted. And, of course, the 
businesses that serve the people of the community will be 
impacted.
    Well, today, I wanted to, with the others, outline why this 
is bad for the U.S., the U.S. consumer, and why I believe this 
is an antitrust violation.
    If you go back just 4 years ago and view this as a stepped 
transaction, you see a very different picture in the shipping 
industry. Four years ago we would have had five major players--
Emery, Airborne, Federal Express, DHL and UPS. UPS acquired 
Emery and one disappeared. DHL acquires Airborne and another 
disappears. Now DHL and UPS are intending to combine for taking 
what were five in the U.S. market down to two.
    But we shouldn't just stop there. We should also look at 
what is going on in the European industry right now. The 
Atlanta Journal Constitution just reported that UPS is in 
negotiations to acquire the number two carrier in Europe. They 
report that there are three major carriers in Europe--UPS, TNT 
and DHL. Well, if UPS acquires TNT, the number two, they will 
be down to two. But in reality they will be down to one because 
we already know that between DHL and UPS, there will be this 
strategic alliance. So there really will be one where there 
were three. So if you go to Europe to send a package to the 
United States, whether you go into a DHL or UPS office, you 
will be dealing with, in effect, one company.
    Now, what else is bad for the U.S. besides the impact of 
the consolidation? We will be dismantling important 
infrastructure for the operation of our economy. When these 
industries grew, they grew slowly in scope. Today, though, in 
order to be able to compete in the package systems industry, 
you have to have a nationwide system. That will be dismantled 
and will become a barrier to entry for others. So we will have 
consolidation and we will also have preventing further 
competition.
    Once they have market control, what will happen? Well, they 
can limit the service and control pricing.
    What are some of the things that we know? Well, I met with 
DHL officials in my office, and these are some of the things 
that we do know. Their computer systems will be integrated 
because the two companies will have to talk to one another. 
Their costs will have to be coordinated because UPS will be 
charging DHL. And we also know, because they reported this to 
me in my office, that this may expand--the strategic alliance 
may expand to European and Asian markets. So it is not merely 
just a strategic alliance between UPS and DHL here.
    Now, what do we need to know? We need to know why would UPS 
and DHL agree to do this and how did DHL take Airborne, a prior 
business that was profitable, and generate losses? What is the 
future relationship between DHL? Is this just the start? And 
what does this mean for the almost 10,000 people in southwest 
Ohio that will have lost their jobs as a result of these 
consolidations with DHL and UPS?
    Now, usually, for me, if something doesn't make sense, I 
assume something else is going on. And in this instance, I 
think something else is going on and that we do have here a de 
facto merger. Why would DHL hand its clients to UPS? Why would 
DHL cost structure--agree to a cost structure that would become 
higher than UPS, since they are basically going to become UPS-
plus?
    DHL is going to share its information with UPS. Why 
wouldn't UPS steal DHL's clients and why wouldn't that concern 
them? Why would anyone choose DHL when everyone will know that 
they are a front office for UPS and they can go direct?
    Why wouldn't DHL seek cost cutting without abandoning their 
independent U.S. presence instead? And why is there no deal for 
us to scrutinize when they have been in negotiations and 
discussions for months? Why would DHL have exclusive 
negotiating rights with UPS and not agreed to negotiate with 
their own carriers, ASTAR and ABX? For me, if it doesn't sound 
right, it probably isn't right.
    I would like to end with the last paragraph that I put in 
an op ed piece for the Cincinnati Enquirer. I think it sums up 
the issues that we have here. All of this should be 
unnecessary. If DHL lived up to its promises to Ohio and to the 
town of Wilmington, we all would be focusing on how to make DHL 
more successful.
    Wilmington's past support for DHL should count for 
something. The surrounding community accepted DHL's vision of a 
global company operating in their backyards and understands 
that DHL must curtail its losses. However, usually when a 
company is losing money, they fire someone, they don't fire a 
whole town.
    Well, I guess now we know that there is a difference with 
DHL. Maybe the letters for DHL stand for ``Do Harm and Leave.''
    [The prepared statement of Mr. Turner follows:]
        Prepared Statement of the Honorable Michael R. Turner, 
          a Representative in Congress from the State of Ohio
    Thank you Chairman Conyers, Ranking Member Smith and the other 
members of the Judiciary Committee for holding this important hearing 
today on the proposed DHL/UPS transaction that would shift DHL's air 
shipping from ABX and AStar to an exclusive contract with UPS.
    I also want to thank my Ohio colleagues for their work on this 
important issue. Our delegation has truly worked together on a 
bipartisan basis to achieve the best possible outcome for Ohio, its 
workers and their families.
    Mr. Chairman, from what we currently know of this proposal, DHL 
intends on ending their inter-US air shipping contracts with ABX and 
AStar, and contract exclusively with UPS. The result of this 
transaction would be the closure of the Wilmington Airpark, owned by 
DHL, as DHL's operations would presumably consolidate to a UPS 
facility. Additionally, as DHL is the largest customer of ABX and 
AStar, it is reported that this transaction will likely result in the 
drastic downsizing, if not full closure of these two domestic carriers. 
The total direct impact of the current proposed transaction will amount 
to over 8000 jobs in Ohio, most of which are in Clinton and Highland 
Counties.
    The losses go beyond the direct impact of jobs. From schools, to 
churches, to non-profits, to small businesses, I would venture to say 
that there will not be a single entity in Wilmington that will not be 
detrimentally impacted by DHL's abandonment.
    Mr. Chairman, unfortunately, since the announcement of the 
transaction, very few details have been released. Our community and its 
workers deserve answers. My community wants assurances that this 
transaction complies with federal law. That is what we hope to achieve 
here today.
    Mr. Chairman, unfortunately, this is not the first time in recent 
history when UPS has negatively impacted my community of southwest 
Ohio. The transaction between UPS and DHL, which this committee will 
examine today, should be viewed in the context of UPS's recent history 
of consolidations in southern Ohio.
    Prior to 2001, Emery Worldwide had been operating a successful air 
shipping business out of Dayton, Ohio. Emery was succeeded by Menlo 
Worldwide Forwarding, a global shipping company. Menlo operated their 
business out of the Dayton International Airport with gross revenues 
reported at $1.9 Billion in 2003. In 2004, UPS acquired Menlo and 
consolidated their operations to Louisville, Kentucky. This eliminated 
over 1500 Dayton-based jobs.
    Similarly, until 2003, Airborne Express had been a leading domestic 
shipping company, operating out of Wilmington, Ohio. It was reported 
that at that time, Airborne maintained 19% of the overnight shipping 
market in the US. DHL operated a facility at the Cincinnati Airport. 
DHL acquired Airborne and subsequently consolidated their Cincinnati 
operations into the Wilmington, Ohio facility.
    Mr. Chairman, I and the leaders of the Wilmington community were 
assured that the outcome would be favorable for the community and that 
no jobs would be lost. As a result, our federal, state and local 
leaders rallied to make DHL a success. DHL owns a state-of-the-art 
airpark and sorting facility in Wilmington. The State of Ohio, as well 
as local city and county governments, pledged nearly $450 Million 
dollars in investments toward ensuring DHL's success.
    Now, UPS will become the benefactor of DHL's airlift operations; 
once again, consolidating the air cargo market, causing the demise of 
two additional domestic shipping companies (ABX and AStar), and causing 
the loss of over 8000 Ohio jobs.
    If this transaction is allowed to proceed, the overall effect will 
be that UPS will have successfully consolidated over 10 thousand jobs 
from Ohio, and caused the closure of four domestic air cargo companies 
(Emery/Airborne/ABX/AStar).
    This consolidation of the market will surely have a detrimental 
impact on American consumers. In fact, this transaction has the 
potential to affect international shipping, further consolidating 
markets, and consumer choice. The Atlanta Journal Constitution reported 
on August 22nd that UPS is rumored to be acquiring TNT, a European 
express shipping company. Reports indicate that this acquisition will 
add 15% market share to UPS's European express shipping business and 
will make them the number one express shipper in Europe.
    These consolidations are just the beginning. In a meeting with DHL 
officials, I asked if they believed that the DHL/UPS strategic 
relationship would expand to include their European and Asian markets, 
and they indicated that it could.
    Further, UPS and DHL report that they will continue to compete 
against each other. However, they intend to fully integrate their 
computer systems, customer lists, and transportation infrastructures. 
Dealing with DHL will really be dealing with UPS. They will cease to 
operate as separate companies. This transaction should be viewed as if 
a merger between them was to occur.
    If these transactions go forward, the US market with contract from 
what has been five major players--FedEx, UPS, DHL, Airborne, and 
Emery--to two players. FedEx and a combined DHL/UPS will be left. In 
Europe, the three major carriers will in effect become one, with a 
possible UPS/TNT acquisition and a strategic alliance between UPS and 
DHL.
    Today the committee has the opportunity to shed much needed light 
on this proposal and to get answers to the questions which Wilmington 
and Ohioans are seeking.
    Mr. Chairman, my community has brought forward a list of questions 
that I have provided to the Committee's membership. These are questions 
that employees, their families and friends have submitted to my office, 
and I encourage the Committee's membership to consider these inquiries 
when they have the opportunity to question today's panels.
    Mr. Chairman, I'm sure you will hear today from UPS and DHL, and 
they will tell you that this transaction does not raise anti-trust 
issues. But when you consider the context of this transaction--that the 
proposed UPS/DHL transaction is the next phase in a stepped transaction 
which will result in the loss of four domestic carriers, it is obvious 
that American consumers will lose meaningful choice when they ship a 
package.
    Mr. Chairman, I would like to close by reiterating what I said in 
an Op-Ed for the Cincinnati Enquirer. I would like to submit that Op-Ed 
for the record. In that piece, I said: ``. . . all of this should be 
unnecessary. If DHL lived up to its promises to Ohio and to the town of 
Wilmington, we could all be focusing on how to make DHL more 
successful. Wilmington's past support for DHL should count for 
something. The surrounding community accepted DHL's vision of a global 
company operating in their backyards and understands that DHL must 
curtail its losses. However, usually when a company is losing money, 
they fire someone, not a whole town.''
    We now know that the letters ``DHL'' stand for ``Do Harm and 
Leave''.

    Mr. Conyers. Thank you so much.
    I notice Attorney Betty Sutton, a Judiciary Committee 
Member from Ohio, who works with me closely on matters of 
antitrust, but none of the Senators or Members of Congress here 
have used the term ``outsourcing agreement,'' and that is 
perhaps an oversight or maybe--I don't know what it is. Would 
you share some light on that area of this hearing with us, 
Attorney Betty Sutton?

           TESTIMONY OF THE HONORABLE BETTY SUTTON, 
      A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

    Ms. Sutton. Thank you, Mr. Chairman. I do believe that that 
word is in my testimony.
    Mr. Chairman, thank you so much for holding this hearing on 
this very important issue. And thank you to all the Members who 
are here today to hear about this, that is so crucial to 
working families in Ohio. I want to thank my colleagues both 
from the Senate and the House for coming forward; and we stand 
in solidarity to make our points.
    As an Ohioan, I sincerely appreciate your efforts, Mr. 
Chairman, to closely examine this agreement between DHL and 
UPS. And I hope that the efforts here today will bring to light 
the very negative implications of this proposed agreement. This 
hearing is an important step in protecting American consumers 
and fighting for American jobs, and I commend your leadership 
on both.
    This business contract affects not only the 8- to 10,000 
jobs that are at risk in Ohio, but every American who receives 
and sends packages. And that is why today I would like to talk 
about the U.S. domestic air carrier market. Currently, the air 
carrier market, as has been noted, is dominated by three 
express carriers--FedEx, DHL and UPS. Any person in this 
country can use one of these providers to have packages shipped 
throughout the country for door-to-door delivery. However, 
there are recent developments that affect these top competitors 
in the air carrier markets.
    In May, Deutsche Post WorldNet, the parent company of DHL, 
announced that it was restructuring all of its North American 
operations. As part of this restructuring, DHL announced it 
would enter into a long-term contract with UPS in which UPS 
would provide air carrier services for DHL within North 
America. So that means that if a DHL customer sent a package 
that required air transportation, UPS would sort and deliver 
the package instead of DHL. In a sense, DHL is outsourcing its 
air carrier operations to UPS.
    The contract between DHL and UPS is not a formal merger; 
however, given the close relationship between the two 
industries, it is a de facto merger. If UPS executes all of 
DHL's air carrier operations, it will require the sharing of 
sensitive information such as tracking numbers, customer 
information and pricing. And I believe it is safe to say that 
the sharing of this sensitive information puts the companies at 
risk of remaining independent competitors.
    It is common sense. When a business agreement results in 
shared information that decreases competition, that raises 
serious concerns under section 1 of the Sherman Act.
    Besides these very legitimate concerns, this business 
agreement, as has been stated here, would substantially 
diminish the competitive nature of the air carrier industry. If 
UPS and DHL are allowed to enter into this contract, then the 
domestic air carrier industry would only be comprised of FedEx 
and UPS. According to a report from the Air Cargo Management 
Group, without DHL as an independent competitor, UPS and FedEx 
would make up 96 percent of the domestic air delivery market. 
This raises a series of concerns.
    First, with only two large competitors in the industry, it 
will make it difficult for smaller businesses to enter into the 
market. Second, there is less incentive to compete on price, 
which would negatively affect consumers. And lastly, since this 
agreement would lessen competition, it raises a potential 
violation of section 7 of the Clayton Act. The bottom line, Mr. 
Chairman, is that this agreement between DHL and UPS raises 
serious questions under the antitrust law and deserves careful 
examination.
    What is perhaps the most concerning aspect of the issue, 
beyond the potential violation of the antitrust law, is the 
incredibly harmful effect this agreement will have on Ohio 
workers and families; and that can't be overlooked. There are 
8,000 Ohio workers at risk of losing their jobs. This means 
more families without health insurance, more families 
struggling to put food on the table, and more families 
struggling to keep a roof over their heads.
    Mr. Chairman, Ohio's working families are already suffering 
from the impact of harmful trade and economic policies that 
have caused much damage and that this Congress is working hard 
to reverse. According to the Ohio Department of Jobs and Family 
Services, in the month of July, the number of workers 
unemployed in Ohio was 430,000. Last year alone, Ohio lost 
nearly 100,000 jobs, contributing to an unemployment rate of 
7.2 percent; and now we face a flawed business agreement that 
is threatening more Ohio jobs. I, along with my colleagues, 
will continue to fight to make sure our working families have a 
voice in this matter and that we look at it very closely.
    And what is perhaps even more alarming is that the 
potential job loss reaches far beyond Ohio. Deutsche Post 
WorldNet's new North American business plan also includes 
closing 34 percent of its U.S. operations.
    Mr. Chairman and fellow Committee Members, I ask that you 
examine this issue with the utmost concern and scrutiny not 
only because of its antitrust implications, but because of the 
negative impact this agreement would have on our economy and 
our working families. With a 6.1 percent unemployment rate 
nationally, I do not think that any of our districts in Ohio or 
beyond can afford to lose more jobs, especially from a faulty 
business agreement.
    And I yield back.
    [The prepared statement of Ms. Sutton follows:]
           Prepared Statement of the Honorable Betty Sutton, 
          a Representative in Congress from the State of Ohio
    Thank you Mr. Chairman for holding this important hearing on an 
issue that is so crucial to working families in my home state of Ohio.
    As an Ohioan, I sincerely appreciate your efforts to closely 
examine this agreement between DHL and UPS and I hope that your efforts 
here today will bring to light the very possible negative implications 
of this proposed agreement.
    This hearing is an important step in protecting American consumers 
and fighting for American jobs and I commend your leadership in both.
    This business contract affects not only the 8,000 jobs that are at 
risk in Ohio, but every American who sends or receives packages.
    And that is why today I would like to talk about the U.S. domestic 
air carrier market.
    Currently, the air carrier market is dominated by three express 
carriers: FedEx, DHL and UPS.
    Any person in this country can use one of these providers to have 
packages shipped throughout the country for timely, door to door 
delivery.
    However, there are recent developments that affect these top 
competitors in the air carrier market.
    In May, Deutsche Post World Net, the parent company of DHL, 
announced that it was restructuring all of its North American 
operations.
    As part of this restructuring, DHL announced that it would enter 
into a long-term contract with UPS, in which UPS would provide air 
carrier services for DHL within North America.
    This means that if a DHL customer sent a package that required air 
transportation, UPS would sort and deliver the package instead of DHL.
    In a sense, DHL is outsourcing its air carrier operations to UPS.
    The contract between DHL and UPS is not a formal merger.
    However, given the close relationship between the two industries it 
is a de facto merger.
    If UPS executes all of DHL's air carrier operations, it will 
require the sharing of sensitive information such as tracking numbers, 
customer information, and pricing.
    I believe it is safe to say that the sharing of this sensitive 
information puts the companies at risk of remaining independent 
competitors.
    When a business agreement results in shared information that 
decreases competition, this raises serious concerns under Section 1 of 
the Sherman Act.
    Besides these very legitimate concerns, this business agreement 
would substantially diminish the competitive nature of the air carrier 
industry.
    If UPS and DHL are allowed to enter in this contract, then the 
domestic air carrier industry would only be comprised of FedEx and UPS.
    According to a report from the Air Cargo Management Group, without 
DHL as an independent competitor, UPS and FedEx would make up 96 
percent of the domestic air delivery market.
    This raises a series of concerns.
    First, with only two large competitors in the industry, it will 
make it difficult for smaller businesses to enter into the market.
    Second, there is less incentive to compete on price, which could 
negatively affect consumers.
    And lastly, since this agreement would substantially lessen 
competition, it raises a potential violation of Section 7 of the 
Clayton Act.
    The bottom line, Mr. Chairman, is that this agreement between DHL 
and UPS raises serious questions under Anti-Trust law and deserves 
careful examination.
    What is perhaps the most concerning aspect of this issue beyond the 
potential violation of Anti-Trust law, is the incredibly harmful effect 
this agreement will have on Ohio workers and families.
    There are 8,000 Ohio workers at risk of losing their jobs.
    This means more families without health insurance, more families 
struggling to put food on the table and more families struggling to 
keep a roof over their heads.
    Mr. Chairman, Ohio's working families are already suffering from 
the impact of harmful trade and economic policies that have caused much 
damage, and that this Congress is working hard to reverse.
    According to the Ohio Department of Jobs and Family Services, in 
the month of July, the number of workers unemployed in Ohio was 
430,000.
    Last year alone, Ohio lost nearly 100,000 jobs contributing to an 
unemployment rate of 7.2 percent.
    Now, we face a flawed business agreement that is threatening more 
Ohio jobs, and I will continue to fight, along with my colleagues, to 
make sure our working families have a voice in this matter.
    And what is perhaps even more alarming, is that the potential job 
loss reaches far beyond Ohio.
    Deutsche Post World Net's new North American business plan also 
includes closing 34 percent of its U.S. operations.
    Mr. Chairman and fellow members of the Committee, I ask that you 
examine this issue with the utmost concern and scrutiny.
    Not only because of its Anti-Trust implications, but because of the 
negative impact this agreement could have on our economy and our 
working families.
    With a 6.1 percent unemployment rate nationally, I do not think 
that any of our districts can afford to loose more jobs, especially 
from a faulty business agreement.
    Thank you, Mr. Chairman and I yield back.

    Mr. Conyers. Thank you.
    There is a sense of urgency here. This could go into 
effect, like tomorrow; am I not correct? And further, this 
could reach, not just throughout Ohio, but it could reach 
Michigan and beyond; am I not correct?
    And so as I thank the Senators for their appearance here 
today and close down our first panel.
    I would like to caution our Members of the Committee to 
realize that there must be another side to this story here. 
With all due respect to the distinguished group of colleagues 
that are before the Judiciary Committee, there must be some 
other position not yet revealed to the Committee that makes 
this something--well, let's say, if we were in court, there 
would be a presumption of innocence, wouldn't there be, to 
start off with consideration of these matters?
    Right now, we have received from the distinguished men and 
women that represent the State of Ohio and including another 
distinguished Member from Ohio on the Committee, as well as the 
one that is before us, there has been one picture here. And so 
I look forward to the second panel to hope that there may be 
some proportionality or redressing of the issue that makes us 
wonder how this could be going on, this so-called agreement of 
outsourcing that, in effect, is a merger. And where is our 
Antitrust Division of the Department of Justice?
    There should be some good reasons forthcoming, and I thank 
this panel so much for their time and energy and 
resourcefulness. We will expand this recess for the vote that 
is pending on the floor. Thank you all very much.
    [Recess.]
    [3:25 p.m.]
    Mr. Conyers. The Committee will come to order. And I thank 
the witnesses and our guests here today for their patience and 
cooperation.
    We are so delighted that we are joined by Mr. David Balto, 
Captain Prater, Captain Ross, President Burt Wallace, CEO John 
Mullen, Mayor David Raizk. And, of course, we are honored to 
have the Lieutenant Governor of the State of Ohio, Lee Fisher, 
who has a long and distinguished career in Ohio politics. He 
has been not only a State representative but a State senator 
for quite a period of time and has a distinguished resume. He 
has also been Attorney General of the State of Ohio and was 
elected Lieutenant Governor in 2006.
    Now, it is true that in panel one the testimony seemed to 
stack up all one way. We are hoping that with this panel there 
may be a development of some kind of balance that didn't seem 
to exist previously.
    But all your statements will be included into the record. 
And we will now begin. And we welcome as our first witness 
Lieutenant Governor Lee Fisher.

 TESTIMONY OF DAVID LEE FISHER, LIEUTENANT GOVERNOR, STATE OF 
                              OHIO

    Mr. Fisher. Mr. Chairman, thanks very much for giving me 
and my colleagues today the opportunity to testify.
    Although I have no doubt that you will hear some balance 
today, you are not going to hear it from me, because I share 
the views of all the members of the prior panel. And, in fact, 
Governor Strickland and I have worked very closely with Senator 
Brown and Senator Voinovich and Congressman Turner, Congressman 
Sutton, and, for that matter, every single Member of the House 
congressional delegation, including Congressman Jordan, who is 
here today as a member of your panel.
    And I want to begin by saying to you that this is not one 
of those issues that has a partisan divide. This is an issue 
that both Presidential candidates have focused in on because it 
is an American issue dealing with jobs.
    I have the responsibility in Ohio, Mr. Chairman, of serving 
not only as Lieutenant Governor but also as the director of the 
Ohio Department of Economic Development. So I am here today 
wearing both hats. And as you were nice to mention, I also, in 
a prior position, served as the Attorney General of Ohio. And 
during that time, I was the Chair of the National Association 
of Attorneys General Antitrust Committee. So I don't pretend to 
be as expert as some of members of this or other panels on 
antitrust law, but I do have some familiarity. And where 
antitrust laws intersect with economic development I suspect 
that I do have some experience, given the job that I hold 
today.
    And in the time that I have been in public office in Ohio 
over the last 28 years, I have never seen a potential 
dislocation that will, if it goes forward, have the magnitude 
that it will have in southwest Ohio. That is why Governor 
Strickland and I wake up every single morning and make this 
particular matter our single highest priority.
    The Wilmington Air Park is the largest privately owned 
airport in the United States of America. This is no small part 
of real estate. It is a piece of real estate that actually has 
tremendous potential. And to the credit of DHL, they recognized 
that early on when they first made their decision to locate 
there.
    ABX, a contractor with DHL, employs approximately 6,000 
women and men; ASTAR, another contractor, employs approximately 
1,200; and DHL itself employs 1,000. But that only begins to 
touch the surface. As Congressman Chabot knows, who just walked 
in, there are some 2,000 employees throughout southwest Ohio in 
41 affected counties, including the congressional districts of 
many members of our Ohio delegation, that will be either 
directly or indirectly affected by this decision.
    I want to recognize that because I deal with economic 
development every day. Neither Governor Strickland nor I are 
naive or ignorant of the changes that are going on in the 
global delivery market and, particularly, the pressures that 
are on those companies that are unusually oil-dependent. And 
until we all do a better job of reducing our dependence on 
foreign oil, whether it is our domestic automakers or whether 
it is DHL, they are going to have some challenges.
    But what has been disappointing, at least so far, in this 
situation is that we have not been given the opportunity, as 
the seventh-largest State in the country, to be able to sit 
down with DHL and try to address their financial challenges.
    While we might have some disagreement about the extent of 
those challenges, we might even have some disagreement about 
why they have their challenges, we don't have disagreement that 
they have them. Where we have disagreement is about how to 
solve them. We think that their proposed transaction with UPS 
is a solution that is unwise, unfair and unnecessary.
    We have indicated, Mr. Chairman, on repeated occasions that 
we are prepared to meet with Deutsche Post and DHL anywhere, 
anytime, in the world to work with them as their risk-sharing 
collaborative partner, as we do with companies around the world 
every day, to try to address their financial challenges, to 
reduce their cost of doing business. But we have not been given 
that opportunity despite repeated requests since May 28th when 
the announcement was made.
    You heard today very articulately from my colleagues, both 
Senators and Members of Congress, why we believe that this is, 
in fact, anticompetitive; and we do. We think this transaction 
is one step closer to a full merger between DHL and UPS. As 
this deal has been reported, customers will still place their 
orders with DHL, the branding would remain the yellow and red, 
but UPS would handle the package sorting and the delivery of 
those packages. In effect, DHL would be a $1-billion-a-year 
customer of UPS.
    The question left unanswered--perhaps we will hear it 
today--is whether the customers of DHL Express would continue 
placing their orders with DHL when their packages are being 
sorted and delivered by UPS. Or would DHL Express customers 
eliminate the middle man and contract with UPS directly?
    Some analysts view the proposed transaction as an 
indication that DHL will not continue to compete for market 
share. Less competition could mean higher rates for the two 
industry giants, UPS and FedEx. Based on past experience with 
DHL, we are concerned that the Wilmington Air Park will be 
idled once most of DHL Express's domestic shipping and package-
handling work is outsourced to UPS. As has been pointed out in 
prior testimony, this would be not the first time that Ohio has 
suffered a similar loss, although this will be the largest of 
them all.
    One of my successors in the Ohio Attorney General's Office, 
the current Attorney General, Nancy Rogers, has met with 
Governor Strickland and me. And we have discussed that there is 
no higher legal priority to us than taking a look as to whether 
or not Ohio's antitrust statute, the Valentine Act, applies to 
this particular transaction.
    I am pleased to say that the antitrust section of the Ohio 
Attorney General's Office has retained and is working closely 
with a nationally respected economist experienced in issues of 
competition in the transportation industry. And the Attorney 
General's Office has sought out, obtained and analyzed 
extensive data, conducted numerous interviews, and is engaged 
in statutorily authorized information-gathering at this point.
    As you know, our United States Attorney General has also 
been asked to look at this by the entire congressional 
delegation. On July 10th, I traveled to Washington, DC, to meet 
with James O'Connell of the Antitrust Division and Julie Warren 
in the Intergovernmental Office. We talked about why it was 
Governor Strickland's and my belief that there were clear 
potential violations of the antitrust laws.
    We have negotiated in good faith with DHL Express. And we 
were pleased to extend financial and other incentives to the 
company to locate their operations at Wilmington in 2004.
    In April of 2008, representatives of DHL Express, including 
their chief legal counsel, who is here today, traveled to 
Columbus to discuss a taxation policy that has historically 
benefited the company. Unfortunately, during that meeting, when 
I directly asked the company representatives about the future 
of the DHL site in Wilmington, they did not indicate any plans 
to downsize DHL's Express operations in Ohio.
    I want to make it clear that I know their chief counsel, 
and I am not suggesting in any way that he misled me. It is 
quite possible that he himself did not know at the time. But 
the point is not so much that we were misled but that we were 
not given the chance to sit down with DHL before they made 
this, we think, fateful and unwise decision.
    During the questions and answers, Mr. Chairman, I would be 
more than happy to address my own personal views on the 
violation of the Sherman Act, the Clayton Act and Ohio's 
Valentine Act, but in the interest of time and because there is 
an antitrust expert at the other end of the table, that may not 
be necessary. And so I will defer those kinds of questions to 
later, if it is all right, Mr. Chairman.
    [The prepared statement of Mr. Fisher follows:]
                 Prepared Statement of David Lee Fisher



    Mr. Conyers. Thank you, Lieutenant Governor Fisher, for 
getting this second panel off to a very fine start. Your 
information and insight and, I would say, considerable 
experience in antitrust issues will be very helpful as we sort 
our way through this very intriguing and, in some ways, 
mysterious problem that confronts the Committee on Judiciary 
today.
    Mayor David Raizk, a lifelong resident of Wilmington, is 
our next witness. He went to school there, he went to college 
there, he worked his entire life there. He was the director of 
public safety and then 16 years as the president of the 
Wilmington City Council. And the last 8 years, he has been its 
mayor and begins his third term.
    And we welcome you here for your insight on the subject 
matter for which we have come.

 TESTIMONY OF THE HONORABLE DAVID L. RAIZK, MAYOR, WILMINGTON, 
                               OH

    Mr. Raizk. Thank you, Mr. Chairman.
    First of all, I want to say thank you to you and to all the 
Members of the Committee for giving me the opportunity to 
testify here today. I am always honored to represent the 
community that I serve, my hometown, Wilmington, Ohio. 
Wilmington and Clinton County is a wonderful place to live, 
work and raise your family.
    I also want to thank Lieutenant Governor Lee Fisher, 
Governor Ted Strickland, Senators Brown and Voinovich, 
Congressman Mike Turner, Congresswoman Betty Sutton, Mr. Chabot 
and all the members of the Ohio delegation for coming to our 
aid. We have created one of the perfect scenarios of bipartisan 
support in support of those citizens of southwestern Ohio. If 
anybody is disaffected with government today, they ought to 
look at what is happening in Wilmington, Ohio, and they can 
renew their hope in government.
    Since May 28th, a storm has descended on Wilmington, Ohio, 
and it won't go away. On May 28th, DHL, Wilmington and Clinton 
County's largest employer and also the largest employer in the 
five surrounding counties, announced that they were seeking a 
deal with UPS, their biggest competitor, to handle their 
airlift operations in the United States. This effectively would 
cease operations at the Wilmington Air Park.
    This was especially difficult for me, as I received this 
news firsthand in Germany at DHL and Deutsche Post World Net 
headquarters. I was in Germany as a guest of DHL, representing 
the City of Wilmington and the Wilmington Air Park, the largest 
hub in the DHL network, at the grand opening of their new hub 
in Leipzig.
    While given the economic climate, we knew some 
restructuring was in the works and some job loss would be 
coming, primarily as a result of the standing down of the DC-9 
portion of the business of DHL, ABX and ASTAR. But there was 
reason for optimism concerning the Wilmington Air Park.
    In February, I hosted a conference call in my office with 
Governor Ted Strickland, representatives of ASTAR Air Cargo and 
ABX Air, DHL's partners for airlift and sorting operations in 
the United States, and representatives of DHL. At that time, 
DHL assured the Governor that, although there would be some job 
cuts coming, they were committed to the Wilmington Air Park. In 
April, as the Lieutenant Governor testified, in discussions 
with DHL on possible assistance from the State of Ohio, 
Lieutenant Governor Lee Fisher was also assured of DHL's 
commitment to the Wilmington Air Park.
    So it was with some comfort level that I went to Germany to 
represent Wilmington. That comfort was further enhanced when 
German Foreign Minister Steinmeyer, the keynote speaker at the 
hub opening, mentioned Wilmington, Ohio, in his address.
    Imagine my shock 2 days later when I received the news 
firsthand that DHL was seeking a deal with UPS. Those of you 
who have played football and have had the wind knocked out of 
you know exactly how I felt.
    What will be the result of this proposed transaction? What 
will be the impact?
    The job loss alone, which includes DHL, ABX Air, ASTAR Air 
Cargo, and 18 companies we have identified located in and 
around the air park with direct or indirect relationships with 
the operations there would be almost 10,000--9,786.
    The annual payroll for just the three companies is over 
$257 million. Health-care benefits provided for the workers 
total $63 million. The local hospital that these employees 
provide with their health-care coverage almost 8 percent of 
their total revenue, that would incur a loss to the local 
hospital of $7 million to $8 million, plus the increase in 
charity care when these benefits would cease. It would put them 
out of business.
    This transaction would also bankrupt the State of Ohio's 
unemployment insurance fund. The impact to the schools, to city 
and county government, nonprofits and local business would be 
devastating. Our data analysis indicates that one in five small 
businesses will fail if this transaction goes through.
    If I sound alarmist, it is because we are facing an 
economic catastrophe of unparalleled proportion. We are not 
trying to save jobs of the old technology that have failed to 
keep pace with competition and the new economy. These are 21st-
century jobs: pilots and crew members, supply chain and 
logistics professionals, aircraft and airframe mechanics, 
conveyer engineers. And this is not a case of the Rust Belt 
versus the Sun Belt. These jobs will simply disappear.
    In 2004, we welcomed DHL and ASTAR Air Cargo into the 
Wilmington family. ABX Air and its predecessor, Airborne 
Express, accounting for over 6,000 of these jobs, have been 
with us for 30 years. They are part of the fabric of our 
community. There is an air park employee in one of every three 
households in the city of Wilmington. Many husbands and wives 
work there together. Many family farms were saved because of 
part-time work at the air park that provided the health care 
that they needed to continue. Students at Wilmington College, 
many the first in family to go to college, work at the air park 
to reduce their indebtedness upon graduation. In short, these 
jobs just didn't appear in 2004. Over the last 30 years, the 
community has grown with the growth of the air park. This 
proposal would rip the fabric of our community.
    Now, I don't know what the criteria or the definition for 
``antitrust'' is. I am a simple mayor from a small town in 
southwestern Ohio. DHL and UPS say this is a contractor-vendor 
relationship. But to abandon your largest hub and deliver the 
freight to your number-one competitor, then I say it is a de 
facto merger.
    Given the recent history of acquisitions of smaller air 
carriers by both companies and the significant antitrust 
waivers embedded in the Open Skies agreements, a picture starts 
to form. In Wilmington, a foreign-owned company, with huge 
assistance from the State and local government, took over 
ownership and operation of the largest private airport in the 
United States, a state-of-the-art facility. In a little over 3 
short years, if they complete this transaction, they will have 
taken two American companies off the board, both of which had 
significant market share. In the process, they will displace 
almost 10,000 American jobs.
    You know, at the end of the day, this is about people. 
These are not just numbers; they are our friends, our 
neighbors, our families. How will they pay their mortgage? How 
will they feed and clothe their kids? How will they educate 
their children? Please think about these hard-working Americans 
as you consider these issues.
    Thank you so much for the opportunity to testify.
    [Material submitted by Mr. Raizk follows:]
           Material Submitted by the Honorable David L. Raizk



    Mr. Conyers. Thank you, Mayor. We are impressed by your 
international knowledge of the circumstances that bring us here 
today and also of your deep devotion to the city of Wilmington, 
which you clearly love so much.
    Well, Members of the Committee, we now turn to the chief 
executive officer of DHL, Mr. John Mullen, who is, as well, a 
member of the management board of DHL's parent company. He is 
an experienced person in this area of cargo transportation. He 
has served on the boards of Telstra Corporation, Embarq 
Corporation, as well as a member of the International Swimming 
Hall of Fame. He is an all-around person, carrying a rather 
large responsibility at this hearing because so many issues 
have been raised, so many questions unanswered, that, in all 
fairness, we might feel obligated to give you as much time as 
everybody else before you has had, but obviously that is not 
possible. I regret it.
    But nevertheless, it is very interesting that this company, 
founded in 1969 by Adrian Dalsey, Larry Hillblom and Robert 
Lynn as an express delivery service between San Francisco and 
Honolulu, has grown, was purchased, indeed, by the German 
Government. And because of Federal laws prohibiting foreign 
control of domestic air carriers, DHL's U.S.-based air carrier 
was sold off, eventually becoming ASTAR Air Cargo. And, in 
2003, DHL acquired Airborne Express and, due to those same 
prohibitions of foreign ownership of domestic air carriers, 
sold off Airborne Express air carrier, as what eventually 
became ABX Air.
    And so this international commercial activity, still 
located in little old Wilmington, is something that brings us 
all here to anxiously await your comments and explanation and 
anything else you would like to contribute to this hearing. And 
we are very pleased that you could come, Mr. Mullen.

         TESTIMONY OF JOHN P. MULLEN, CEO, DHL EXPRESS

    Mr. Mullen. Thank you very much, Mr. Chairman.
    Chairman Conyers, distinguished Members of the Committee, I 
thank you very much for the opportunity to be here today and to 
explain to you a little bit about the situation that DHL is in 
on the proposed contract between ourselves and UPS.
    You will have received my written testimony. I hope you 
have had a chance to read it. In the interest of time, because 
I know it is pressing, I will try to paraphrase that as quickly 
as I can.
    Mr. Chairman, DHL is in a very difficult situation. For 
over 5 years, we have battled to break into the U.S. market, 
and we have spent over $6 billion doing this. We have made a 
lot of progress, and we are very proud of that progress. But 
the reality is it has come at a huge cost, and today we are 
losing some $5 million a day or close to $1.3 billion a year. 
The air express market that we are operating in is shrinking, 
and there is intense competition for declining volume. On top 
of that, we are now facing a rapidly worsening economy and the 
impact of rising jet fuel, as well.
    Now, we are a large company, but no company can lose this 
amount of money and survive. We are under intense pressure from 
our shareholders, from analysts and other external parties, and 
we simply have to take action. And with volumes declining as 
they are, this means, of course, we have to take out cost.
    Now, we have exhaustively examined all of the options that 
we think are open to us, from a number of restructuring options 
to potential partnerships, even to closing down altogether in 
this country.
    And on May 28, as a result of all of that analysis, we 
announced a restructuring plan for the U.S. business of DHL 
Express, which is in two parts: Firstly, we aim to restructure 
some of our ground operations, largely closing some of the 
stations in remote areas. But secondly, we announced the 
intention to enter into a contract with UPS to replace existing 
two subcontractors that provide airline haul for us with one, 
being UPS. Our goal here is to save around $1 billion per 
annum.
    Now, no solution is ideal, and in the situation that we 
find ourselves in there is no silver bullet, there is no simple 
solution. But we think that this is the best possible outcome 
for us, for our company and our shareholders. And it is the 
only option that will allow us to remain a viable competitor, 
and thereby preserving competition here.
    I would like to highlight, if I may, a few key points in 
respect to the proposed contract with UPS.
    Firstly, it is not a merger, it is not an alliance, it is 
not a joint venture, it is not a transfer of assets. We are 
simply replacing two existing subcontractors with one new one 
in one part of our business, which is the air carriage of our 
parcels. DHL remains as independent afterwards as it was 
before. All of our other operations--our pick-up and delivery, 
our billing, our customer service, our information technology, 
et cetera--all of those remain exactly as before. Indeed, the 
customer himself will not see any difference. If we are moving 
a package from New York to Los Angeles, the customer doesn't 
know now on what aircraft that travels; does it go on an ASTAR, 
an ABX, a DHL or UPS?
    Furthermore, this is, in our view, a very common solution. 
In industries where a large amount of capital is tied up in 
fixed assets, capacity-sharing is common. In the passenger 
airline industry, code-sharing has existed for quite some time. 
In the marine industry, shipping lines have collated and used 
each other's space for a long time. And in our own industry, 
here in the United States, some years ago, United States Parcel 
Service, with their competitive parcel product, did exactly the 
same thing: They closed the hub and outsourced that lift to 
FedEx, to Federal Express.
    Now, those are things that we had to do, and we recognize, 
of course, that no such change comes without an impact. We are 
hugely sensitive to the impact that this decision will have on 
Wilmington, on the local community, on our subcontractors and 
all the individuals that will be touched by it. And it is not a 
decision that has been taken lightly. We have absolutely 
agonized over this, I can assure you.
    We formed a team that is putting a huge effort into 
mitigating this impact. We realize, of course, that there is 
nothing that we can do that will entirely mitigate the impact 
on those directly affected. But we are working to put in place 
a plan which we believe goes well beyond any contractual or 
legal obligation that we have and well beyond the normal course 
of action that a company would take in this situation.
    There are three components to that plan. Firstly, we expect 
to allocate $260 million in severance, pension and health 
benefits. Of that $260 million, only $35 million represents our 
contractual and legal obligation. The remaining $225 million 
are benefits over and above that we are willingly paying, not 
only to our own employees, but to the employees of 
subcontractor companies. Secondly, we are working with local 
State and community officials to try to help families and local 
businesses affected by these plans. And thirdly, the local 
community has asked us of our intentions with the air park, and 
we have expressed great willingness to sit down and discuss the 
future of that air park and if that can be useful to the 
community going forward.
    So, in conclusion, Mr. Chairman, may I summarize again, 
this has been a terribly difficult decisions for us. We are 
losing $1.3 billion in a declining market, and we have no 
option but to cut costs. We have considered every option, and 
now we plan to implement a solution that addresses this 
situation.
    Such a plan will obviously not be liked by those effected, 
but it is not a merger and it is not anticompetitive. It is 
common in industry generally, and it is common in our industry, 
where it has existed here in our industry in the United States.
    We believe that this will leave us as a viable competitor, 
thereby preserving competition in the U.S. marketplace. And 
last but most importantly of all, we are doing our very, very 
best to try to mitigate the impact that this decision will 
have.
    Mr. Chairman, distinguished Members of the Committee, thank 
you very much for your attention, and I look forward to 
responding to any questions that you may have.
    [The prepared statement of Mr. Mullen follows:]
                  Prepared Statement of John P. Mullen



    Mr. Conyers. Thank you, Mr. Mullen. We appreciate that 
introduction into understanding the other side of this problem 
that brings us here today.
    The other part of this outsourcing merger agreement, as it 
is called more correctly by you--or outsourcing agreement, not 
a merger, is the distinction you impressed the Committee with--
the other part of this is UPS. And the president of corporate 
transportation for UPS is Mr. Burt Wallace.
    In 1980, he started as a package handler in UPS's Atlantic 
District, and over the next three decades, through hard work 
and skill and intense preparation, he worked his way up to the 
executive suite and is now the president of corporate 
transportation for UPS since 2005.
    We have your testimony. Mr. Wallace, we welcome you here 
for your comments.

 TESTIMONY OF BURT WALLACE, SENIOR VICE PRESIDENT OF CORPORATE 
                      TRANSPORTATION, UPS

    Mr. Wallace. Thank you, Mr. Chairman.
    Chairman Conyers and Members of the Committee, UPS welcomes 
the opportunity to appear before you today to present as 
clearly as possible the facts regarding UPS's proposed 
agreement with DHL.
    On May 28th, 2008, UPS and DHL announced that the companies 
were working toward an agreement for UPS to provide airlift of 
DHL's express, deferred and international package volume within 
the United States and to and from Canada and Mexico. We are 
still negotiating this agreement.
    The proposed agreement is part of a larger restructuring by 
DHL designed to reduce its cost and to help the company to 
remain competitive in the U.S. It has been widely reported that 
this restructuring has several elements, including engaging the 
U.S. Postal Service to provide ``last-mile'' delivery of some 
of DHL's packages.
    DHL has stated very publicly and clearly that it will not 
be able to compete effectively or perhaps remain in the U.S. 
without restructuring its operations and cost. The company has 
reported that it expects to lose $1.3 billion in the U.S. this 
year.
    Mr. Chairman and Members of the Committee, let me state as 
clearly as I can: The anticipated agreement between UPS and DHL 
is not a merger or joint venture, it is not an acquisition, it 
is not a consolidation. UPS and DHL continue to compete 
independently. We will each price and market our own brands and 
services. We will not share profits, cost, or information about 
pricing of services to each other's customers.
    Under the proposed agreement, UPS will act as a vendor to 
DHL, providing contractual services in the same way that 
carriers in our industry, including UPS and Federal Express, 
provide services to the United States Postal Service. This type 
of arrangement, where one company provides service to a 
competitor, is found throughout the transportation industry, 
including the trucking, rail and ocean carriage. It is also 
found in other industries, such as natural gas and 
telecommunications.
    UPS will not provide pick-up or delivery of packages to DHL 
customers. DHL will deliver packages to UPS airport locations 
for movement through UPS's air network to destination airports. 
DHL will then pick up the packages from the destination 
airports for final delivery to its customers. This is the same 
service currently being provided to DHL by two vendors, ABX and 
ASTAR.
    The anticipated agreement, in short, is simply an airlift 
contract, one part of the restructuring that DHL has concluded 
will significantly reduce its cost in the United States.
    There has been a great deal of discussion about the impact 
of DHL's restructuring on the job market in the Wilmington, 
Ohio, region. UPS is a company that has a long history of 
providing good jobs and benefits for employees. We understand 
the importance communities place on attracting and retaining 
employment opportunities for their residents.
    It is very important to note in this regard that the 
expected result of DHL's restructuring will be to preserve 
approximately 40,000 DHL-related jobs in the U.S. that would 
otherwise be as risk. Further, the agreement with DHL will help 
to bring additional job security to more than 14,000 UPS 
employees in Ohio and 358,000 UPS employees in the United 
States.
    I should note that, in 2003, UPS employed 317,000 people in 
the U.S., and since then we have added more than 41,000 
employees to our payroll, which is 14,300 more people than the 
average total number of employees among the Fortune 500.
    It is our hope that growing our business will allow UPS to 
continue to increase the number of jobs throughout Ohio, the 
country and the world. Any suggestion that UPS could somehow 
manipulate the way in which DHL packages move through our 
system to gain a competitive advantage is simply untrue and 
gives DHL far too little credit for being able to protect 
itself. Let me assure you that DHL is a tough negotiator, fully 
able to protect its interest. UPS will continue to compete 
vigorously with DHL and others in the U.S. And around the 
world, and we fully expect DHL to compete vigorously as well.
    DHL's restructuring, including its agreement with UPS, 
actually preserves competition in the package delivery business 
in the U.S. Now, you might ask, why would UPS want to do 
something that helps a competitor remain in the market? For 
UPS, our goal is to find profitable opportunities such as this 
to better utilize our existing capacity, make us a more 
efficient competitor, and allow us to create and provide career 
stability for our employees. In short, this proposed agreement 
represents a wise and efficient use of our assets. It helps 
protect the job of 358,000 UPS employees in the U.S. And if we 
didn't pursue this agreement, one of our competitors would 
have.
    Mr. Chairman, thank you for the opportunity to share UPS's 
perspective on the agreement that helps to strengthen a UPS 
company that provides career opportunities to hundreds of 
thousands of people. I hope the facts that I have outlined 
today address the questions and concerns of the Committee. I 
stand ready to answer any further questions that you and the 
Committee may have. Thank you.
    [The prepared statement of Mr. Wallace follows:]
                   Prepared Statement of Burt Wallace



    Mr. Conyers. Thanks for your presentation. It is beginning 
to introduce, between you and Mr. Mullen, the other side of 
this economic challenge that we have here. We begin to get a 
little balance in. It does not answer all the questions by a 
long shot. Well, it hasn't answered any of the questions. But 
stay tuned.
    Captain Ross, David Ross, president of Teamsters Local 
1224. A former Air Force pilot, earned all kinds of 
distinguished military honors and awards and commendations. 
Served in Operation Desert Storm and others.
    We welcome you to the hearing and are delighted to share 
your perspective on the problem that confronts us.

         TESTIMONY OF DAVID ROSS, PRESIDENT, TEAMSTERS 
         LOCAL 224, ON BEHALF OF THE PILOTS OF ABX AIR

    Mr. Ross. Thank you, sir.
    Mr. Chairman, Congressman Chabot, distinguished Members of 
the Committee, I am grateful you have called this hearing 
because this issue is so terribly important to our national 
economy and so many workers, not just in Ohio but across the 
country.
    Proof of that is that you have called the hearing. Further 
proof of that is that I have had the distinct privilege of 
personally briefing both Presidential candidates in the 
election, Senator John McCain and Senator Barack Obama. I 
personally heard them express their concerns about the 
antitrust issues and job losses generated by this 
anticompetitive deal between DHL and DHS.
    As you know, Mr. Chairman----
    Mr. Conyers. I notice that you mentioned Senator McCain's 
name first. Can we read anything into that?
    Mr. Ross. Sir, I have got Senator Obama's name first in my 
notes, sir. I am not sure how that happened.
    Mr. Conyers. Oh, okay.
    Mr. Ross. But I will get back to Senator Obama.
    Mr. Conyers. Freudian slip, I dare say. All right. Thank 
you very much.
    Mr. Chabot. Mr. Chairman, I am sure it was just 
alphabetical order.
    Mr. Conyers. Oh, all right.
    Mr. Ross. There we go. Thank you, Mr. Chabot.
    Mr. Conyers. More than likely.
    Mr. Ross. As you know, Mr. Chairman, Senator Obama wrote 
the White House and Senator McCain wrote the Senate and 
Antitrust Committee, both expressing their concerns about the 
anticompetitive effects of this deal.
    Senator Obama had requested an additional meeting with me 
this morning in Ohio. I couldn't jeopardize my testimony here, 
so the Chairman of my governmental affairs committee is pinch-
hitting for me. However, Senator Obama's continuing interest 
demonstrates how important this issue is.
    Also this morning, Senator McCain was in Lebanon, Ohio, a 
neighboring town of Wilmington.
    Mr. Chairman, the effect of this proposed transaction will 
be to reduce the competition in the air express market from 
three to two. DHL, with the smallest market share and the 
greatest incentive to compete on price and service, is being 
neutered as a legitimate competitor.
    Why do I say this? First, if this transaction is 
consummated, DHL will have to rely on its supposed competitor, 
UPS, for its most vital operations: air transport, tracking and 
sorting.
    Second, a key element of the express delivery business is 
in package tracking. It is the backbone of the service process. 
By combining efforts in this process, DHL will be transferring 
highly sensitive proprietary commercial information about its 
customers and about its market to UPS. A critical element of 
the express package delivery is scanning the bar code. Once the 
bar code is scanned, an incredible amount of proprietary 
commercial information is exchanged between the different 
segments of service, from pick-up to final delivery.
    We, the employees of ABX Air who sort, transport and track 
DHL packages, have 5 years of detailed knowledge of the 
information DHL transfers through ABX necessary for those 
functions. We know firsthand what information will have to be 
passed from DHL to UPS in order for UPS to perform the 
functions currently done by ABX Air. Having watched express 
packages go through the sort for over 16 years and being in 
constant contact with the people doing the sorting, I can tell 
you there is no way UPS can transport, sort and track DHL 
packages without material and proprietary commercial 
information being transmitted by DHL to UPS.
    From a notional view, it makes no sense to rely on a major 
competitor for key elements of your service, especially in such 
a consolidated marketplace. Indeed, there is every incentive 
for DHL propriety information to be disseminated throughout the 
sales and corporate organizations of UPS to the competitive 
detriment of DHL.
    Perhaps DHL will seek to construct a Chinese wall, perhaps 
in the form of confidentiality agreements, that limit the 
dissemination. Unfortunately, Chinese walls leak and 
confidentiality agreements are breached. A deal like this would 
leave the UPS-DHL strategic alliance with 54 percent of the 
express delivery market and FedEx with 43 percent of the 
market, resulting in a monster duopoly and a combined market 
share of 96 percent. This will eliminate the competition in 
this consolidated industry that supports thousands of small 
businesses and millions of consumers across America perhaps 
forever.
    DHL says they must pursue this agreement because they have 
a cost problem, but not once have they approached me for labor 
concessions either directly or indirectly. As a labor leader, I 
am honored to represent the hardworking and professional pilots 
of ABX Air and the workers of the community of Wilmington, 
Ohio. They don't want handouts and false promises; they want 
jobs. They are loyal and committed employees who consistently 
perform just as well, if not better, as anybody in the 
industry. Give them a chance.
    Mr. Chairman, you and this Committee can help give them 
that chance. We respectfully request that you ask the Antitrust 
Division of the Justice Department to review this transaction. 
I was pleased this morning to hear that they are, in fact, 
going to voluntarily go in front of the Department once the 
deal is done. I would ask them to take one further step and, 
once the deal is done, go in front of Justice Department and do 
not implement the deal until it has been cleared by the Justice 
Department.
    I look forward to answering your questions about our 
capabilities and past performances, our discussions with DHL 
and air express operations. Thank you very much for the 
opportunity, sir.
    [The prepared statement of Mr. Ross follows:]
                    Prepared Statement of David Ross
    Mr. Chairman and Members of the Committee, I am grateful you have 
called this hearing because this issue is so terribly important to our 
national economy and so many workers in Ohio. Proof of that, is you 
have called this hearing. Further proof of that, is I have had the 
distinct privilege of personally briefing both Presidential candidates 
in this election, Senator Barack Obama and Senator John McCain. I have 
personally heard them express their concerns about the antitrust issues 
raised and job losses generated by this anticompetitive deal between 
UPS and DHL. As you know, Mr. Chairman, Senator Obama wrote the White 
House and Senator McCain wrote the Antitrust Subcommittee in the United 
States Senate, both expressing their concerns about the anti-
competitive effects of this deal. We are grateful this issue has raised 
such an important and necessary policy discussion as it impacts the 
workers I am honored to represent. Mr. Chairman, I respectfully request 
that this Committee demand that this Justice Department initiate an 
investigation and enforce the antitrust laws of this country.
    My name is Dave Ross, and I am a Captain with ABX Air. I am also 
the President of Teamsters Local 1224 that represents pilots who fly 
for ABX Air. I graduated from the United States Air Force Academy in 
1983, I flew as an instructor and an evaluator in the T-37 and B-52, 
and I flew in Desert Storm where I was awarded two Air Medals and the 
Distinguished Flying Cross. I only mention my military credentials 
because I want to emphasize that I am proud of my service and defense 
of our American way of life. Mr. Chairman and members of the Committee, 
thank you for inviting me to testify before you on the elimination of 
competition in the domestic air express market brought about by a 
proposed transaction between two dominant air express carriers--DHL and 
UPS. DHL's restructuring announcement threatens the careers of our 
members and their ability to provide for their families. As the 
President of Teamsters Local 1224, with the backing of the 
International Brotherhood of Teamsters, I testify before you on their 
behalf. Also, I am hear to speak about a potential economic crisis that 
threatens a small town in Ohio called Wilmington. This pending economic 
crisis was brought about by two global corporate giants who seek to 
merge their services and destroy competition as we know it in the air 
express market.
    You probably remember our airline as Airborne Express. Airborne 
Express entered the express delivery business in the forties, 
delivering tropical flowers from Hawaii. Airborne rapidly expanded with 
a domestic focus while serving the shipping needs of business customers 
and specialty services. Airborne purchased Clinton Country Air Force 
Base in 1980, and developed it as the Wilmington Air Park. While 
enjoying a relatively low cost structure, Airborne was a consistent 
third competitor in the domestic express delivery market that offered a 
lower priced alternative to consumers and small businesses.
    Airborne Express and DHL had reciprocal strengths. While Airborne 
established itself as a strong competitor in the U.S., DHL dominated 
the international market. DHL began in California, and even though they 
were strong internationally, they represented only a small share of the 
U.S. market. Deutsche Post World Net invested in DHL, and gradually 
increased their investment until gaining 100% ownership in 2002. Soon 
thereafter, DHL purchased Airborne Express promising to increase market 
shares and profitability of both partners, improve services for 
consumers, and increase competition. At the time of the purchase, 
Deutsche Post praised the complimentary service portfolios of the two 
airlines and Airborne's broad ground network.
    After the purchase, DHL operated two airlines in the U.S.--Airborne 
Express and DHL Airways. In Europe, DHL operates two airlines--European 
Air Transport based in Brussels and DHL Air UK based in East Midlands. 
Accordingly, any suggestion they can't operate successfully in the U.S. 
with two airlines is contradicted by their operations elsewhere. DHL 
also operates DHL Middle East based at Bahrain and DHL Latin American 
based in Panama City. More recently, DHL announced plans to forge an 
alliance--a joint venture--between it and Lufthansa Cargo called 
AeroLogic, with each having a fifty percent share and flying cargo from 
a new sort hub at Leipzig/Halle airport. The opening ceremony for that 
hub was on May 26th, and attended by the Mayor of Wilmington, Ohio. 
That was two days before DHL's announcement that will devastate 
Wilmington, Ohio.
    DHL's entry into the U.S. market triggered a proceeding before the 
Department of Transportation because of well-established citizenship 
laws for U.S. air carriers, and the airlines that carry express 
packages for DHL were renamed. Airborne Express became ABX while 
operating at the Wilmington Airport, and DHL Airways become Astar while 
operating sixty miles southwest at the Cincinnati/Kentucky 
International Airport. DHL effectively controlled these two express 
cargo airlines through two separate long-term contracts called ACMI 
Agreements, whereby the airlines provide services for aircraft, crew, 
maintenance and insurance. Through these ACMI Agreements, DHL 
controlled the routes, the on-time performance criteria, third party 
services, and any changes of ownership (changes of control). The two 
airlines provided express delivery service on a cost plus basis, with 
ABX reimbursed for all expenses plus a base markup of 1.75% of revenues 
and an incentive for performance which could increase the markup to 
2.5%. ABX also has a Hub Services contract with DHL to operate the sort 
center in Wilmington and other regional sort hubs in cities like 
Roanoke, Virginia.
    Through the control exercised by DHL, service declined and market 
share suffered. While DHL proposes this alliance with UPS because of 
cost problems, the reality is they've created a revenue problem because 
they mismanaged the business of express delivery service.
    In the air express business, on-time-performance is critical to 
customer service. At the time DHL purchased Airborne Express, Airborne 
had an 18.4% share of the market. From 2003 to 2007, with DHL in 
control, rather than realizing the synergies and complimentary 
strengths of Airborne and DHL International, service declined and 
package volumes declined. Market share at DHL/Airborne declined more 
than 25%, while FedEx and UPS gained 10.3% and 11.2% respectively. A 
catastrophic service collapse occurred in September 2005, when DHL 
mismanaged combining the two sort facilities into one at the Wilmington 
Air Park. Rather than integrate the sort facilities over time, they 
tried to do it in one night. In a service industry like this, where on-
time-performance is measured in tenths of percentage points, on-time-
performance dropped below 70% and did not recover for months because of 
decisions made by DHL managers and the effective control they exercised 
through contractual Agreements.
    While Deutsche Post spoke of increased competition and expanded 
service when they purchased Airborne Express, the reality is service 
declined and they now propose to no longer compete. As a result, 
competition itself is threatened in the express package delivery 
business. When on-time-performance declined, market share declined. 
Market share for the dominant players, one brown and the other purple, 
increased commensurately. While problems arose with the consolidation, 
DHL continued their managerial pursuits with unswerving determination 
but with negative results. They operated two airlines, with two 
divergent CEO's, two middle management structures, two airline support 
structures, and two very different aircraft fleets.
    At ABX, we fly more than forty fuel-efficient Boeing 767 aircraft 
that have Category II and III capability which allows us to land in 
nearly all weather conditions. ABX has an established history of 
delivering high margin express packages for the lowest cost with 
impeccable reliability. DHL has expressed concern that some of our 
aircraft are equipped to handle packages in ``C'' containers rather 
than ``A'' containers. First and foremost, express delivery customers 
are concerned with consistent on-time-performance. Second, some 
customers specifically request ``C'' container handling to ensure 
security of high-value shipments. Third, FedEx recently deployed a 
``Micro A'' container which is essentially six ``C''-like containers 
that are fastened together before loading to realize the benefits of 
the ``C'' container. Our system benefited in through-sort capability by 
using the smaller container, and provided more security and breakage 
protection.
    Friction between senior management at DHL and ABX publicly surfaced 
when DHL withheld a pre-payment of about $9 million to ABX under the 
ACMI Agreement because they believed ABX was exceeding a 10% revenue 
threshold from non-DHL customers and demanded reallocation of overhead 
expenses related to non-DHL business. ABX declared DHL in default. 
Before that, Astar CEO John Dasburg attempted to acquire ABX for $7.75 
per share in August 2007, but ABX CEO Joe Hete rejected the offer 
without a counter-offer and with minimal, if any, rationale. On the 
last day of 2007, ABX acquired two airlines made up largely of old and 
fuel-inefficient aircraft for $332 million and created a holding 
company, Air Transport Services Group, of which ABX is now under. DHL 
demanded full repayment for a $90 million note because of a change of 
control at ABX. Today, ATSG stock is valued at a small fraction of its 
worth at the time DHL purchased Airborne Express and ABX shareholders 
have suffered. The relationship between DHL, ABX and Astar involves 
conflicting corporate egos, clashing cultures, and inconceivable 
blunders that have brought great pain to employees and surrounding 
communities. Yet, nobody has taken responsibility for the failures that 
have occurred. Airborne Express was a profitable company that never had 
a losing year and only one losing quarter. How can a thriving global 
corporation such a Deutsche Post World Net turn such a consistently 
competitive company into a venture they now claim stands to lose more 
than 1 billion dollars a year, while themselves, made pre-tax profit of 
more than 3.2 billion euros last year and more than 3.8 billion euros 
the year before that?
    If this third competitor in the air express market is lost, 
competition in the air express industry will be gone forever and the 
express package delivery market will be permanently changed. Antitrust 
laws exist to ensure competition in the free market system. They 
prohibit anticompetitive behavior, monopolies, and unfair business 
practices. As an operator in express delivery business for more than 
sixteen years, there are two important things I have observed. First, 
impeccable on-time-performance is nearly everything in this business. 
Second, competition in this business is good. FedEx and UPS are fierce 
competitors, and without a reliable third consumer choice they would no 
longer have to contend with pricing pressure. The total revenue for the 
U.S. air freight and express industry was more than $32 billion last 
year, an industry record. The two industry giants, FedEx and UPS, 
continue to advertise strongly for express delivery customers. In a 
letter to the U.S. Justice Department, the Chair and Ranking Member of 
the Senate Judiciary Subcommittee on Antitrust, neither of whom are 
from Ohio, have said there may be antitrust issues raised by the 
proposed deal between DHL and UPS, and we agree. According to Mergers & 
Acquisitions Report, FedEx backed out of a deal with Deutsche Post 
earlier this year because of antitrust concerns.\1\
---------------------------------------------------------------------------
    \1\ ``FedEx Eyeing Deal to Buy DHL'', Ken MacFadyen, Mergers & 
Acquisitions Report, Feb. 4, 2008.
---------------------------------------------------------------------------
    A key element of the express delivery business is package tracking. 
It is the backbone of this service process. By combining efforts in 
this process, DHL and UPS will be sharing highly sensitive proprietary 
information that would normally be closely guarded by real competitors. 
Even if barriers to information sharing could be erected, the 
temptation for collusion would be too risky for consumers. A critical 
element of express package delivery is scanning the bar code. Once the 
bar code is scanned, an incredible amount of secret proprietary 
information is exchanged between the different segments of service--
from pick-up, to transit, to sort, to transit, and to final delivery. 
Having watched express packages go through the sort for sixteen years, 
and being in constant contact with the people doing the sorting, there 
is no way UPS can sort and deliver DHL packages without material 
commercial proprietary information being transmitted to UPS. True 
competitors erect every guard possible against exposing such sensitive 
proprietary information from the public, and now DHL proposes to make 
it freely available to a supposed competitor. While a technological 
``Chinese wall'' may be developed to guard against information sharing, 
the same technology may be used to look over, around, or through that 
wall. Consistent customer service and real pricing pressure will come 
only from true competition.
    From a notional view, it makes no sense to rely on a major 
competitor for a key element of your service, especially in such a 
consolidated marketplace. It makes no sense to announce a deal like 
this before the terms of the deal are agreed upon. It defies belief 
that a competitive choice will be available, even to DHL, when the ten 
year proposed contract with UPS ends. A deal like this would leave the 
UPS-DHL strategic alliance with 54% of the express delivery market and 
FedEx with 42% of the market; resulting in a monster duopoly having a 
combined market share of 96%. This will eliminate competition in this 
consolidated industry that supports thousands of small business and 
millions of consumers across America--perhaps forever. When considering 
the size and ferocity of the competition, and the long-term capital 
investment required for an airline, the FAA and other licensing 
requirements, and many other barriers to entry, stopping this 
anticompetitive deal is the last chance for three competitors in the 
U.S. air express market. Another potential harm is to the Civil Reserve 
Air Fleet. ABX has seventeen fuel-efficient Boeing 767's dedicated to 
the Civil Reserve Air Fleet, and Astar has another seventeen aircraft 
so dedicated, which could be lost.
    Since their restructuring announcement, according to the dhl-usa 
web-site, the earliest DHL can deliver express packages at many 
locations is 5 pm. For more remote areas, the earliest DHL can deliver 
``DHL Next Day'' service is one week. The earliest DHL can deliver an 
express package from D.C. to a district office in Lorain, Ohio is noon. 
The earliest they can deliver an express package from D.C. to La Crosse 
or Ladysmith, Wisconsin is 5 pm, but still listed as ``DHL Next Day 12 
pm''. The earliest they can deliver from D.C. to Harrisonburg or 
Staunton, Virginia is 5 pm. For Big Stone Gap or Pulaski, Virginia, as 
well, the earliest they deliver is 5 pm. The type of service DHL offers 
since their restructuring announcement is no longer competitive in the 
air express market and consumers are responding appropriately. If this 
trend continues, consumers and small businesses will be left with only 
two viable choices since the market will be 96% dominated by a duopoly 
with FedEx and a constructively merged UPS-DHL. Specialty services, 
such as a very late pick-up for a cancer treatment drug maker who 
shipped out of Nashville and a very early delivery for a drug testing 
company in Kansas City, are being lost. Wal-Mart announced they ended 
their agreement with DHL from their jewelry division because DHL 
changed their flight route patterns.
    A justification given by this profitable global corporation for 
their restructuring decision is the foreign ownership restrictions in 
the U.S. The citizenship rules for U.S. airlines are well-established. 
As became apparent in 2001, after fanatics decided to use airplanes as 
their weapon of choice, the airline business is different than other 
businesses. Our citizenship laws ensure close oversight of U.S. air 
carriers to ensure the highest level of safety and security for the 
traveling public and the people living below America's airspace. The 
airline industry has unique labor concerns because of the mobile labor 
dynamic involved, and the citizenship laws allow our labor laws to be 
properly applied. Finally, our citizenship laws ensure our passenger 
and cargo airlines are fully available to the Civil Reserve Air Fleet 
(CRAF) to fulfill the unique interrelationship between civil and 
military use. Furthermore, it is doubtful Deutsche Post and DHL Express 
would have done anything differently if they had a 51.1% or greater 
ownership interest in Astar rather than the 49% ownership interest they 
have.
    The restructuring proposed by Deutsche Post, if allowed, will be an 
economic disaster for Wilmington, Ohio. More than 8,200 jobs will be 
unnecessarily destroyed in a small town of about 13,000 people. Many of 
the maintenance workers and sorters have worked at the DHL Air Park, 
formerly the Airborne Air Park, for decades. Many work through the 
night while living on their family farms in rural Ohio. Their jobs 
provide health insurance that has allowed them to work those farms in 
addition to earning a paycheck. The tax base will be devastated, 
medical and school funding will suffer, and small businesses will 
suffer. The psychological impact on families, with layoffs of this 
scale, will be long-term. For wage earners who support their families, 
there will be trauma when they are no longer able to provide for their 
children. For many, this will be the most traumatic event in their 
lives.
    DHL says they have a cost problem, but not once have they 
approached me for labor concessions, directly or indirectly. As a labor 
leader, I am honored to represent the hard-working and professional 
pilots of ABX Air and the community of Wilmington, Ohio. These are 
Ohioans. These are Americans. Even after DHL's devastating 
announcement, they continue to provide impeccable performance. They 
show up every day, holding onto hope that DHL will change its mind. 
They hope that their willingness to work hard will be recognized, and 
that DHL will do the right thing. They work hard. They keep performing. 
They don't want meager hand-outs and false promises, they want jobs. 
They are loyal and committed employees that can perform just as well, 
if not better, than anybody else in this business. Give them a chance.
    Mr. Chairman, you and this Committee can help give them that 
chance. We respectfully request you ask the Antitrust Division of the 
Justice Department to review this transaction. And Mr. Mullen, if you 
are so confident of your position, why don't you voluntarily submit to 
a Department of Justice review and silence your critics.

    Mr. Conyers. Thank you, Captain Ross.
    The international president of the Air Line Pilots 
Association is Captain John Prater, a 29-year veteran in his 
association and also a member of the executive council of the 
AFL-CIO.
    We welcome you here today, sir.

             TESTIMONY OF JOHN PRATER, PRESIDENT, 
           AIR LINE PILOTS ASSOCIATION, INTERNATIONAL

    Mr. Prater. Thank you, Mr. Chairman.
    Chairman Conyers, Members of the Committee, the remarks 
reminded me of a story. I met Larry Hillblom, one of the 
founders of DHL, over a labor issue. The labor issue was that 
they were going to change the deal that they had in Guam. I 
flew to Guam, I met with Larry Hillblom and the Governor, and 
in 1 day we had saved the jobs, we had protected the entity and 
the community that was in our home, Hagatna, Guam. It can be 
done. There are solutions. But they have to be willing to talk.
    On behalf of the 53,000 ALPA pilots in the United States 
and Canada, I am certainly honored to testify on their behalf 
today. I am here specifically to speak on behalf of 500 pilots 
that ALPA represents, but we are concerned about all of the 
workers in the communities that will be affected by this 
transaction.
    I am reminded that the last time I was before the chairman 
we were talking about bankruptcy and its impact on workers and 
communities. Here we have today another transaction. They can't 
quite find the name for that transaction, but I haven't heard 
any level or any balance. What I do know is this is one bad 
deal. It is bad for my members, it is bad for ASTAR, it is bad 
for Air Express competition, it is bad for southwestern Ohio, 
and it is bad for American workers. For that reason, it is 
important that Congress look carefully at the proposed 
arrangement and ensure that it is thoroughly reviewed by 
antitrust authorities before it is consummated.
    The overall impact of the transfer of all DHL flying from 
the ASTAR and ABX hub operations in Wilmington will be 
enormous: a loss of more than 10,000 jobs and a dramatic 
reduction in the economic activities in southwestern Ohio.
    I want to thank all of the elected officials from Ohio, 
from both sides of the aisle, that have given this so much 
interest. But I would especially like to thank Senator Brown, 
who spent a lot of time with me trying to seek and find a 
solution.
    My written testimony contains a detailed roadmap through a 
confusing set of corporate decisions that lead to one 
destination: disaster. That map includes secret discussions 
between UPS and Deutsche Post which they hid from affected 
companies, employees and public officials. In ALPA's case, the 
secrecy was clearly intended to deprive us of the chance to 
protect our members' jobs, both in bargaining and litigation. 
Neither the result nor the procedure used to achieve it is in 
the interest of the U.S. economy.
    Our first clue came on May 28th of this year when Deutsche 
Post, the German-based parent company of DHL, announced that it 
was negotiating to transfer all North American flying presently 
performed by ASTAR and ABX to its competitor, UPS. We were 
surprised for several reasons.
    First, Deutsche Post has a 49 percent ownership stake in 
ASTAR and representatives serve on its board of directors. 
Despite those close ties, the company utterly failed to inform 
either ASTAR or its employees that it had been negotiating with 
UPS for 6 months. While Deutsche Post was cutting its deal with 
UPS, ASTAR was negotiating a collective bargaining agreement 
with ALPA that was potentially paving the way to raid our 
pilots of their jobs.
    In 2003, Deutsche Post sought to expand its North American 
operations to become a bona fide competitor to FedEx and UPS by 
purchasing Airborne, merging its ground operations into DHL's 
and spinning off its air operations as ABX Air. But once 
Deutsche Post, or DHL, entered into the same sort of commercial 
arrangement with ABX as it had with ASTAR, they renounced any 
obligation to adhere to the collective bargaining agreement 
with my union. This led to several years of litigation.
    Meanwhile, negotiations over a new contract between ASTAR 
and ALPA began in 2005 and continued through the beginning of 
this year. The central issue in these negotiations was no great 
surprise; it was job security. What we did not realize--and 
this was one very important detail--was that DHL and its 
parent, Deutsche Post, were negotiating to hand over all flying 
to UPS.
    Meanwhile, DHL was making demands for revisions in the job 
security provisions of the tentative agreement between ASTAR 
and ALPA, including settlement of our litigation, which we see 
now was designed to clear the way for this secret arrangement 
with UPS.
    As I said, one bad deal.
    I will close by reminding the Committee what DHL, which had 
been acquired by Deutsche Post, said in justifying that 
acquisition back in 2003 prospectus. And I quote, ``The UPS-
FedEx duopoly today has a 79 percent share of the U.S. air 
express delivery market verses Airborne and DHL's combined 21 
percent market share. The Airborne-DHL combination will act as 
stronger third competitor in the expedited door-to-door 
delivery of small packages and documents, and will have the 
ability to bring reduced prices and better service to small- 
and medium-sized businesses.''
    No aspect of this prediction turned out to be true. 
Deutsche Post managed to take two niche competitors with a 
portfolio of premium business customers and likely survivors in 
the industry, consolidate and restructure them to its needs, 
and then run them into the ground. Now, after stripping both 
carriers of their ground operations, it proposes to leave the 
airlines and our workers for dead. It is hard to see how the 
proposed DHL-UPS alliance will benefit consumers. As I said, 
this is one bad deal.
    We ask the Committee to ask the parties not to implement 
their deal until it has been reviewed by either the Department 
of Justice or the Federal Trade Commission.
    I thank you and look forward to answering any questions the 
Committee may have.
    [The prepared statement of Mr. Prater follows:]
                   Prepared Statement of John Prater
    Good afternoon. I am Captain John Prater and I am President of the 
Air Line Pilots Association, International (ALPA) representing some 
53,000 pilots in the United States and Canada. I am testifying today on 
behalf of the 500 pilots ALPA represents at ASTAR Air Cargo, a group of 
pilots which has flown packages and cargo for DHL for over twenty 
years, on the proposed arrangement between Deutsche Post, (recently 
renamed DPWN) and United Parcel Service to provide all lift for DHL's 
air overnight service.
    I believe our concern is well known. On May 28th, 2008, Deutsche 
Post, the German-based parent Company of DHL, announced that it was 
negotiating to transfer all North American flying presently performed 
in its service by ASTAR--as well as that performed by ABX--to United 
Parcel Service. Despite the fact that Deutsche Post had, and continues 
to have, a 49% ownership stake in ASTAR and representatives on its 
Board of Directors, it did not inform either ASTAR or its employees 
that it had been in negotiations with UPS for the previous six months 
to arrange to have it perform all of ASTAR's services until that press 
conference. If the transaction announced on May 28th is consummated and 
the government chooses to ignore the obvious anticompetitive impact of 
the deal, ASTAR will cease to exist and every one of our members at 
this carrier will be on the street. However, ALPA represented pilots 
and other ASTAR employees will obviously not be the only affected 
group. The state of Ohio has estimated that the immediate impact of the 
transfer of all DHL flying from the ASTAR and ABX hub of operations in 
Wilmington, Ohio will be a loss of over 10,000 jobs and a dramatic 
reduction in economic activity in Southwestern Ohio. In short, the 
impact on both our membership and on their friends and neighbors in the 
region will be catastrophic, and for that reason alone it is important 
that Congress and the Department of Justice look carefully into this 
matter.
                               background
    Three U.S. entrepreneurs established DHL in the late 1970s as a 
provider of freight forwarding and courier services. It established air 
operations to support its delivery service in the 1980s and, by the end 
of that decade, had sorting operations and a hub in the Greater 
Cincinnati/Northern Kentucky Airport. DHL, along with Airborne Express, 
became competitors to FedEx and United Parcel Service in the domestic 
express package industry. In 1990 the DHL pilots voted to be 
represented by the Air Line Pilots Association and, since that time, 
ALPA has negotiated four collective bargaining agreements with DHL and 
its successors, culminating in the 2008 Agreement.
    In 2001 Deutsche Post purchased DHL and spun off its airline 
subsidiary, DHL Airways, which was later renamed ASTAR Air Cargo. Based 
on the requirements of the 1998 collective bargaining agreement it 
signed with ALPA, DHL was still bound to assign its flying to ALPA 
represented pilots on the ASTAR seniority list and it continued to do 
so pursuant to what is known as an Aircraft, Crew, Maintenance, and 
Insurance (ACMI) Agreement with ASTAR. Under that agreement DHL 
reimbursed ASTAR for the costs of the collective bargaining agreement 
with ALPA, and the labor contract was incorporated by reference into 
the ACMI Agreement. In addition, pursuant to federal aviation statutes, 
majority ownership in ASTAR was transferred to American citizens and 
eventually ended up in the control of former Northwest Airlines CEO 
John Dasburg and his investor colleagues.
    However, in 2003 Deutsche Post, seeking to expand its North 
American operations in order to become a bona fide competitor to FedEx 
and UPS, purchased Airborne Express, merged its ground operations into 
DHL's, and spun off its air operations, which became ABX Air. It 
entered into the same sort of commercial arrangement with ABX as it had 
with ASTAR, and then renounced any obligation to adhere to the 
requirements in the collective bargaining agreement it had signed with 
ALPA's ASTAR pilots. This lead to several years of litigation based on 
an absurd ruling from the National Labor Relations Board barring ALPA 
from taking its contractual claim against DHL to a neutral arbitrator--
a ruling which was eventually reversed by a unanimous Court of Appeals 
in 2008.
    While this dispute was working its way through the NLRB and the 
courts, negotiations over a new collective bargaining agreement between 
ASTAR and ALPA began in 2005 and continued through the beginning of 
2008. The central issue in these negotiations was, not surprisingly, 
job security and the extent to which our members could continue to 
perform the flying they had performed throughout the history of DHL. 
What we did not realize as we reached the crucial stage of this 
negotiation in January of 2008 was that DHL and its parent, Deutsche 
Post--which in the summer of 2007 had extended its ACMI agreement with 
ASTAR through 2019 and, at the same time, also took a 49% ownership 
interest in ASTAR and placed representatives on its Board of 
Directors--were in negotiations with United Parcel Service to have UPS 
perform all of ASTAR's flying operations. DHL not only withheld 
knowledge of these negotiations from both ASTAR and ALPA, it also made 
demands for revisions in the job security provisions of the tentative 
collective bargaining agreement between ASTAR and ALPA--including 
settlement of litigation between ALPA and DHL--that in retrospect were 
obviously designed to clear the way for its secret arrangement with 
UPS.
    The misrepresentations and material omissions made by DHL to ASTAR 
and ALPA in order to influence our negotiations is now the subject of 
litigation and we, of course, understand that these issues are not the 
subject of this hearing. However, in reviewing the competitive impact 
of the proposed arrangement between DHL and UPS, as well as its impact 
on the southern Ohio communities which have depended on the employment 
provided by both ASTAR and ABX for several decades, the fact that this 
deal was made in secret without the opportunity for competitive 
bidding, and with the clear intent of depriving the affected parties of 
an opportunity to protect themselves or respond, is obviously relevant 
in assessing the legitimacy of what Deutsche Post is doing.
THE IMPACT OF THE ARRANGEMENT
    Prior to the acquisition and integration of DHL and Airborne 
Express in 2003 by Deutsche Post there were four major private sector 
players in the U.S. express package industry: FedEx, UPS, Airborne 
Express, and DHL. The United States Postal Service also supplied a 
competitive service, the fate of which will be discussed later in our 
testimony. As can be seen from attached Table 1, at that time FedEx and 
UPS were the major providers of service, but each of the other 
competitors had established niches.
    When DHL, which had already been acquired by Deutsche Post, further 
consolidated the industry by purchasing Airborne it made the following 
representations justifying the decision in a 2003 prospectus:
    The UPS/FedEx duopoly today has a 79% share of the U.S. air express 
delivery market (versus Airborne and DHL's combined 21% market share).
    The Airborne/DHL combination will act as a stronger third 
competitor in the expedited door to door delivery of small packages and 
documents and will have the ability to bring reduced prices and better 
service to small and medium-sized businesses.
    In the markets Airborne competes in today, made up primarily of 
large, corporate accounts, its price levels are substantially lower 
than its competitors. The expanded DHL company will have the capital 
and resources to leverage this value into the small to mid-sized 
marketplace.
    No aspect of this prediction turned out to be true. The air express 
market is more concentrated than ever, with what DHL described as the 
FedEx/UPS ``duopoly'' in control of an even greater share of express 
package volume and revenue than in 2003. (See attached Tables 2-4.)
    As can also be seen, the consolidation of DHL and Airborne has 
diminished, not enhanced, the market share of the combined entity, 
which now controls less than 10% of express package revenue. The bottom 
line of this is clear--Deutsche Post managed to take two niche 
competitors with a portfolio of premium business customers, both of 
which were likely survivors in the industry, consolidate and 
restructure them to its needs, and then run them into the ground. Now, 
after stripping both carriers of their ground operations, it proposes 
to leave the airlines for dead.
    This is an unconscionable result simply based on it's ramifications 
for affected employees and consumers. However, we also note ASTAR 
provides major support for the Civil Reserve Air Fleet (CRAF), and if 
this deal is allowed to go through, our government will be denied 
access to a substantial part of the lift it is counting on and, in fact 
is using on routine basis. This Committee should understand that the 
CRAF contract in place is between United States and ASTAR, not DHL.
    Why has this happened? Both ASTAR and ABX have met all performance 
targets set for them by DHL and have provided 99% on time performance. 
The pilot workforces at both carriers, while reasonably compensated, 
are not as well compensated as pilots at UPS or FedEx. DHL's problem in 
North America is not the cost or effectiveness of its air operations. 
Its problem has been providing effective enough service on the ground 
to take market share from UPS or FedEx. This problem will not be solved 
by switching to another provider of lift, much less by transferring 
this responsibility to DHL's principle competitor. To put it simply, 
DHL's difficulties in North America are not due to the cost or 
effectiveness of its lift, but rather with its inability to effectively 
implement the ambitious business strategy it announced in 2003.
    In this respect, Deutsche Post has pointed to the contract for lift 
between the United States Postal Service and FedEx as an example of and 
precedent for what it is trying to do. This precedent is inapplicable. 
To begin with, the USPS is not even covered by US antitrust laws and 
the cost and rendition of its service is carefully regulated. More 
important, less than one percent of the USPS' volume is express or 
expedited delivery. Hence, the Postal Service only competes with FedEx 
in a very narrow portion of its product line. By contrast, UPS offers a 
competing product for virtually every DHL offering. Finally, as can be 
seen in the tables we have presented, while FedEx has supplied 
excellent service to the USPS, the USPS/FedEx contract has not been an 
effective formula for preserving market share for the Postal Service's 
express mail product.
    In this matter, it strikes us as obvious that relying on your 
principle competitor for your primary mode of transportation and giving 
it close to perfect information on your pricing strategy is not a good 
way to maintain, much less enhance, a corporation's market share. 
Indeed, the erosion of DHL's market share is probably already 
occurring. Many DHL customers have been targeted by UPS and have been 
told that DHL's service is now dependent on UPS and pointing out the 
comparable services provided by UPS. DHL has not yet provided investors 
with a tally of the impact of the announcement of the DHL/UPS deal on 
reduced volume run through DHL's Wilmington hub, but the feedback we 
are getting from flight crews and sort personnel is that the negative 
impact of this announcement has been significant and volume has been 
appreciably diminished. It is obvious that DHL products will lose 
market share, and the so-called ``duopoly'' that Deutsche Post claimed 
that it wished to address will become more entrenched as the result of 
this arrangement.
                               conclusion
    As pointed out earlier, the discussions between UPS and Deutsche 
Post occurred in secret and neither the providers of lift nor public 
officials in Ohio were told anything about it until the May 28, 2008 
press conference. The reason for this seems obvious: the company 
officials promoting this arrangement did not want to provide adversely 
impacted parties or citizens with an opportunity to point out the flaws 
in the plan or develop alternatives. Indeed, the flaws in the announced 
plan are so obvious that we suggest DPWN may have additional components 
to the strategy which it has not yet made public.
    In ALPA's case, the secrecy was clearly intended to deprive us of 
the chance to attempt to protect ourselves both in bargaining and by 
continuing litigation that we undoubtedly would have maintained had we 
known of DHL's true plans. In short, we have an arrangement which will 
inevitably eliminate competition and employment, cooked up in secret in 
order to bypass affected companies and US citizens. Neither the result 
nor the procedure used to achieve it are good or in the interest of the 
US economy. For these reasons, we believe the transfer of DHL's lift to 
UPS requires, at the very least, careful scrutiny by this Committee and 
the agency it oversees, the Department of Justice, before the deal is 
consummated.
    Thank you for your time and interest in this important matter. I 
will be happy to answer any questions.

                               ATTACHMENT




    Mr. Conyers. Thank you so much, Captain Prater.
    Mr. Conyers. Attorney David Balto is one of our leading 
independent antitrust experts. For more than 20 years, he has 
been an attorney of antitrust law in the private sector. He has 
worked in the Department of Justice. He has plied his trade in 
the Federal Trade Commission and currently he is a senior 
fellow at the Center for American progress. We have your 
statement and we welcome you to this hearing.

          TESTIMONY OF DAVID A. BALTO, ATTORNEY AT LAW

    Mr. Balto. Thank you, Mr. Chairman and other distinguished 
Members of the Committee, for the privilege of testifying 
before you today. I am here representing consumers and the 
Consumer Federation of America and, as detailed in my 
testimony, I am here testifying because this alliance raises 
serious competitive concerns that could potentially lead to 
significantly higher prices for millions of consumers, 
businesses--large and small--that use express delivery package 
services. I base my testimony on my 19 years of experience as a 
trial attorney at the Antitrust Division and a senior antitrust 
enforcer at the Department of Justice.
    Let me be clear about this. If this was a merger, this 
hearing wouldn't occur today. Why? Because these parties would 
be in court right now with the Justice Department, because this 
merger would be clearly anti-competitive. It reduces the number 
of competitors from 3 to 2. You don't have to be a Ph.D. 
economist to realize that the easiest way to dance the waltz of 
collusion is when there are only two partners on the dance 
floor. That is why in 100 years of Clayton Act jurisprudence, 
no court has approved a merger to duopoly except where entry 
was easy, and entry ain't easy in this case.
    So is the alliance they have formed a big enough difference 
to justify this under the antitrust laws? I don't think so. 
First of all, they suggest that alliances between competitors 
are somehow not immune from the antitrust laws. Anytime that 
UPS and DHL enter into any kind of agreement, either tacit or 
explicit, it is scrutinized under section 1 of the Sherman Act. 
The critical question is how that impacts the incentive and 
ability of those two firms to compete.
    In this case, those questions are clearly answered in the 
negative. First, DHL will be dependent on UPS for its entire 
air transportation services. As the Ohio delegation has 
observed through this arrangement, DHL will surrender control 
over cost and service quality to one of its chief competitors. 
We are not talking about buying a few seats on an airplane. We 
are talking about the heart and arteries of these two firms' 
businesses. In this setting, it is hard to imagine how DHL will 
have the ability to challenge UPS and FedEx by lowering prices 
or improving service. In response, UPS can easily discipline 
DHL by mismanaging delivery, increasing costs, or reducing 
services.
    Second, as Captain Ross has testified, through this 
arrangement UPS can gather a wealth of competitively sensitive 
information about DHL's customers' pricing and competitive 
initiatives. With this information, UPS can selectively target 
DHL customers, offering them special discounts and other 
services.
    The parties may say there are firewalls. I give you an 
example in my testimony of a situation where a judge rejected a 
promise of a firewall to approve an otherwise anti competitive 
merger.
    Third, through this arrangement UPS can engage in price 
squeezes, basically lowering prices to its customers, raising 
the cost to DHL, diminishing its ability to compete.
    I understand the parties say this deal is not problematic 
because the Postal Service entered into a deal with FedEx, I 
think that proves the point. How has the Postal Service done 
since that deal? Rather poorly. They are becoming competitively 
inconsequential.
    Why should this Committee, why should the Antitrust 
Division assume that there should be anything different from an 
UPS-DHL agreement? My testimony goes into great detail about 
why the weakened financial status of DHL cannot justify this 
merger as an antitrust enforcer. That is an argument I heard 
over and over again.
    I wrote a law review article, looking back at cases where 
that argument was made. And you know what, Mr. Chairman? In 
every case those companies survived. They found better 
managers, better financing, they kept competing.
    Finally, I am concerned that the Antitrust Division has not 
opened an investigation of this merger. I could be wrong, but 
if they haven't, it is a mistake. This deal can be consummated 
the moment that agreement is signed. The moment that agreement 
is signed, this market will be changed irretrievably. The time 
to secure information about the potential effects of this 
arrangement is now, not after DHL becomes a captive passenger 
on the UPS railroad. Once that deal is consummated, it is going 
to be extraordinarily difficult to unscramble the eggs. Once 
that deal is consummated, it is going to be really hard for the 
antitrust agencies to get customers to give an independent view 
and to complain about the merger.
    What these parties should do is they should enter into a 
voluntary agreement to have the Justice Department investigate, 
and not consummate that agreement until the government 
completes their investigation.
    You might think that is unusual. It actually is not that 
unusual. Google and Yahoo are doing it right now with the 
Justice Department. What with Google and Yahoo, no one is going 
to lose their job if that agreement gets reached. With Google 
and Yahoo, no one is going to lose their health care if that 
agreement is reached.
    If DHL and UPS believe in their obligations as corporate 
citizens, they should go and enter that agreement to give the 
Justice Department a chance, a fair chance to make a full 
evaluation of the competitive effects. That is what the purpose 
of the antitrust laws are. That is why consumers need an 
investigation. Thank you.
    [The prepared statement of Mr. Balto follows:]
                  Prepared Statement of David A. Balto



    Mr. Conyers. Thank you, Attorney Balto.
    I notice in our guests here today there are a lot of white 
shirts and epaulets. Would all the pilots and those connected 
with the airlines please stand up? Are you here to exercise 
your first amendment rights or intimidate the Committee? Please 
sit down. Thank you for coming.
    Before I turn this over to Steve Chabot, our distinguished 
colleague from Cincinnati, I would like to invite Mr. Mullen 
and Mr. Wallace in this conversation we are having today to 
make a few comments that they may choose to make about anything 
they have heard or wanted to add to their own testimony.
    Mr. Wallace. Yes. Thank you for the opportunity. Just a 
couple of observations. You know, there have been comments made 
regarding the sharing of information and how that could be 
detrimental as an example. We are still negotiating our 
potential agreement with DHL, but we understand the importance 
of competition and we have talked a lot about making sure that 
customer information, as an example, is not shared between the 
organizations, that the only information that would be shared 
would be information that is necessary to physically transport 
and sort the package safely and efficiently.
    In terms of our information technology systems, again with 
the proposed agreement, we would maintain independent 
information technology systems and only pass back and forth, 
again, that information that would be required for the safe and 
efficient transportation of the package, and would be limited 
information. It would not include a customer-specific detail.
    That is one thing I wanted to spend a minute on and get 
some additional clarification on. In regards to the thought of 
a merger, it is our intention to continue to compete vigorously 
with DHL. I believe that is Mr. Mullen's intention as well, to 
continue to compete vigorously with UPS. UPS will be providing 
one portion of the transportation services that are necessary 
to accommodate the package delivery business. DHL will maintain 
control of their customer relationship, their pricing, their 
ground network, the pickup and delivery of their packages to 
their customers, and rely on UPS for the air transportation 
part. We will not have access to each other's cost structures 
as part of this proposed agreement. We will simply act as a 
service provider for DHL, which presumably will reduce their 
cost and allow them to remain competitive in the industry going 
forward.
    Mr. Mullen. Thank you, Mr. Chairman. I would echo what my 
colleague to my left has just said. Our two companies are very 
strong competitors all around the world. We operate in over 200 
countries. We are fierce competitors in all of those. This is 
one capacity sharing arrangement in one country albeit, 
obviously, a very significant and important one.
    We have heard a number of things today that I would 
respectfully like to try to correct. I have heard that it is a 
merger, an alliance. It is in no way a merger or an alliance. 
It is purely a capacity sharing operational outsourcing 
agreement. We have heard that UPS will perform deliveries on 
our behalf, effectively taking over all of DHL's deliveries. 
That has never, ever been part of this arrangement. This is 
purely a line hold sharing arrangement.
    We have heard that UPS will have access to our proprietary 
information such as pricing, such as details about customers, 
about our costs, et cetera. None of that is true either. We 
will only make available what information is necessary for UPS 
to perform its contractual commitment to move our packages in 
their aircraft. That does not include anything to do with 
pricing or sensitive customer data. So even without a Chinese 
firewall, even if that wasn't there, we won't simply be 
providing enough information for that to be an issue in the 
first place. So we are very confident that we can structure an 
agreement. We are still working on it. But all of the risks to 
us in terms of the diminution of our competitiveness in the 
U.S. market are addressed. We haven't finalized that yet, but 
we are very confident we will be able to achieve that.
    Mr. Conyers. Thank you very much. I am now going to turn 
this over to the distinguished gentleman from Ohio, Cincinnati, 
Steve Chabot.
    Mr. Chabot. Thank you, Mr. Chairman. And thank you for 
holding this very important hearing. I want to thank all the 
witnesses for taking the time to testify. I know many people, 
members--I know Mike Turner in particular has been very 
involved in this because it is in his district, but many other 
members as well, and obviously our Senators and, Mr. Fisher, we 
certainly do appreciate your interest and your insight in this.
    You know, at a time when the national unemployment rate is 
over 6 percent and the State of Ohio's is over 7 percent, 
something like this really couldn't come at a worse time, 
especially for a relatively small community like Wilmington 
where the impact could be up to almost 10,000 jobs, as the 
mayor indicated, and the impact that that will have on so many 
people's lives.
    So I think it is important that we are taking this with the 
utmost seriousness. And although there is not a clear solution 
and we haven't, obviously, resolved anything today, getting all 
facts out and leaving no stone unturned in considering what 
impact this will have and how we can lessen that impact on real 
people's lives I think is important.
    I would commend the Chairman for taking the time in doing 
this and making this effort because it really is important.
    Just a couple of questions. Mr. Mullen, first of all, the 
airport is privately owned by DHL, and given the immense loss 
of jobs expected as a result of this decision and the 
significant antitrust implications of your pending agreement 
with UPS, would DHL consider relinquishing ownership of the 
airport as part of a settlement with the city and the State so 
the facility could be redeveloped?
    And in addition to that, is the sale of the air park an 
option that could be pursued, given your financial state and 
the benefit it could bring to Wilmington, and it would seem 
like that would be a win-win. Could you comment on that?
    And, finally, does the contract with UPS involve exclusive 
dealings--and wouldn't a nonexclusive agreement so you could 
negotiate, say, with, for example, ASTAR or ABX, wouldn't that 
seem to help to come to a reasonable solution here?
    Mr. Mullen. The first part of your question, sir, about the 
airport, we have consistently expressed complete willingness to 
discuss the future of the local airport with the local 
community. I personally at the time flew to Columbus and met 
with the Governor to offer--that would be very much on the 
table. And so I think the working group that is now interacting 
between the two sides have that as one of the issues for 
discussion. If we can help mitigate the impact by either ceding 
that airport or being involved in some form of sale, as you 
have said, we will willingly do that.
    Mr. Chabot. As to the exclusivity and----
    Mr. Mullen. The second part of your question, yes, we do 
have a commitment to complete this negotiation with UPS at the 
moment.
    Mr. Chabot. Thank you. And to anyone who would like to 
comment on this, why shouldn't the agreement be met with 
skepticism, especially since it is an agreement between two of 
the industry's dominant companies, and in many ways isn't it 
just an act of industry consolidation? I know that Mr. Mullen 
objects to the term ``merger,'' so I will call it industry 
consolidation. How does this agreement differ from other 
agreements that are in place in the industry, for example, 
contracts with the United States Post Office, for example? Do 
the benefits of this agreement outweigh the negative impact 
that this agreement will have on the Wilmington community and 
the State of Ohio? Or is it clear that the negative impacts 
would outweigh the agreement?
    And I would be happy to hear from any of the members of the 
panel who might like to comment. Mr. Mullen, and then Captain 
Ross.
    Mr. Ross. Yes, sir. Just a little bit--we have talked the 
outsourcing--we will call it a vendor relationship, and I would 
like to differ. We are a vendor for DHL as ABX Air. The product 
we vend is the transport, sorting, and delivery of that 
package. In order to do that, we have got the addresses, we 
have got the names, we have got the businesses, we have got the 
book of business of DHL. We are a vendor.
    We also provide as a vendor some very interesting things. 
Tracking--some DHL packages are tracked as many as 12 different 
locations as they travel from one location in the country to 
the other. Without the information of who that customer is and 
what the contact is for that customer, that customer cannot 
update that package tracking. So I guess if they want to 
contract with UPS and not provide all the customer information, 
they can get rid of the tracking portion of the DHL package.
    Something else we do in the sort is called dimming. As a 
package goes through the sort--because now we can send a 
package from home, we can print our own labels--there has got 
to be a check on that package and what was paid for that 
package. In the sort, those packages are dimmed. It is resized 
and it is checked to see what was paid for that package. In 
addition to that, you have to know the service level of that 
package. So all those packages are dimmed as they go through 
the sort.
    Currently at ABX Air, the dimming of packages saves DHL $1 
million per week, $52 million a year by dimming those packages. 
But to dim the packages you have to know where that package 
came from, who shipped it, what the service level was. We can 
give up that too, I guess, if we go to just a bland label with 
UPS. I don't think that it is good business.
    I think to provide the level of service the customers 
demand in today's market and to protect the company, DHL, I 
think we need those two capabilities of tracking and dimming.
    As far as the USPS portion of this goes, I had an 
opportunity to talk to the gentleman that helped structure the 
movement of the Postal Service to Federal Express. Most of the 
packaging that goes for USPS is through sort. It goes 
containerized from aircraft to aircraft. There a small amount 
of actual individual package sorting, and that is done with a 
blander label; we are going from San Francisco to Seattle. They 
do a small portion of that.
    And also the USPS, it is a mom-and-pop, it is an occasional 
shipper, and I don't really think it is a target of--something 
that UPS or FedEx would want to go after. And as said by the 
gentleman down at the end, Mr. Balto, UPS has suffered and lost 
significant business since Federal Express took over the 
sorting of that package.
    Mr. Chabot. Thank you. Captain Prater.
    Mr. Prater. I will be very brief. DHL purchased two U.S. 
companies, drove them into the ground, walked away from them, 
walked away from the communities and the workers that were 
employed there to provide those services. I have no way of 
knowing the full extent of the DHL holdings, but I do know they 
own a significant portion, 49 percent of another air transport 
U.S.-based company flying between the U.S. and Japan and China. 
So where does this all go? I think we need to get our hands 
wrapped around it.
    Mr. Chabot. Mr. Mullen.
    Mr. Mullen. When addressing the question of the value of 
this, I would just like to stress one thing again respectfully, 
that we face an extremely serious situation here as a company. 
While this type of capacity sharing is common in many 
industries, it is a first for us. We would not be doing this 
unless there was considerable value, obviously, to our company, 
and that main value is that we wish to stay in business in the 
United States. With losses at 1.3 billion a year, clearly it is 
completely unsustainable.
    While obviously the impact on the community directly 
affected is huge, we also have many tens of thousands of other 
employees in this country to worry about. And, you know, one of 
the very disagreeable parts of the role of an executive in a 
company is to make these sorts of decisions, that we are 
jeopardizing the future of nearly 40,000 DHL employees in the 
United States unless we can reach an acceptable resolution of 
our loss situation. We are not even seeking to eliminate the 
loss.
    The proposal that we have here, the combination of the 
restructuring of our ground operations as well as the 
outsourcing with UPS, will save about a billion. That is still 
going to leave us in a loss situation of several hundred 
million dollars a year, which is a lot of money by anyone's 
standards. But we are prepared to continue to bear that level 
of loss because we wish to maintain a global network, we wish 
to maintain our business in the United States. But we cannot go 
on losing over a billion. It is simply unsupportable for a 
company of any size.
    Mr. Chabot. Yes, sir, Mr. Balto.
    Mr. Balto. Look, there is always a temptation to go and try 
to tailor arrangements to let the businesses do what they want. 
And, you know, I think that would be a real mistake in this 
case. No one has asked the question of these folks yet: Why 
won't they enter into a voluntary agreement not to consummate 
the deal? There is irretrievable harm that will occur if they 
consummate the deal and it is anticompetitive. If you can't 
trust them to go and do that, how can you trust them to live up 
to any of the commitments that they are willing to make in 
terms of not sharing information, not abusing rights, you know, 
UPS not abusing DHL. I don't know what the answer to that 
question is.
    Mr. Chabot. Any other panel members that would like to 
comment? Okay. If not--yes, Mr. Fisher.
    Mr. Fisher. Mr. Chairman, Congressman Chabot, just a point 
that I think is worth making. That is, as I said in my 
testimony, with all due respect to what Mr. Mullen said, that 
they looked at all different alternatives, they did not look at 
all different alternatives. Because if they had looked at the 
different alternatives they would have sat down with the State 
of Ohio. We engage in these kinds of discussions with companies 
as large as DHL on a regular basis.
    I am not suggesting that we would have had a magic 
solution, but I am suggesting that we were prepared, and remain 
prepared even to this moment, to sit down with them.
    It is my understanding and I have not yet had this 
confirmed, Congressman, that the agreement between UPS and DHL 
prohibits them from talking to the State of Ohio or anyone else 
about any alternative. And if I may ask you to ask them about 
that, unless I am allowed to ask them from sitting here, I 
would be interested to know if that is the case, because I 
think that would be unfortunate because it really means that 
they are not really exploring all different alternatives before 
pursuing this transaction.
    Mr. Chabot. Thank you. Mr. Mullen or Mr. Ross, would you 
want to respond to that?
    Mr. Mullen. Prior to the final negotiations with UPS, we 
explored every opportunity that we could see was conceivably 
possible of delivering a saving of the scale that we were 
looking for in the United States. Now we are in our final 
negotiations with UPS. We do have an obligation for 
confidentiality and exclusivity until that contract is either 
signed or is not signed. So currently we are bound by that.
    Mr. Chabot. Mr. Fisher, let me just ask one final question. 
It is my understanding that the State of Ohio responded when 
this initially happened a number of years ago, and I think DHL 
had invested about 1.2 billion in the infrastructure, and the 
State I think gave around $400 million in tax credits and 
incentives. And it was in doing that, I think, everybody 
thought of this as a long-term venture that was going to be a 
long relationship that was going benefit the community for many 
years to come. And obviously at this point it hasn't come to 
that. But is that--was that the State's investment, 
approximately, in this?
    Mr. Fisher. Yes. That is true. That was our offer and I 
think that all parties had every expectation that this would be 
a long-term relationship. And although DHL did not actually 
accept and receive all of the incentives that were offered--we 
did offer close to $400 million--it is not unusual that a 
company will not accept over a certain period of time all those 
incentives. I believe that if DHL were not to pursue this 
transaction with UPS and were to reconsider for whatever 
reason, DHL, if it were to remain, would probably end up 
accepting many of the incentives that we have offered. But at 
least as of this point, they have accepted some, but not all.
    Mr. Chabot. Thank you. And then finally before I yield back 
my time, Mr. Chairman, Mayor Raizk, did you want to comment?
    Mr. Raizk. Well, a couple of things, Congressman Chabot. I 
think it is important to note that I have heard it mentioned 
several times here today that DHL is contracting now with two 
contractors, but they created those contractors by their 
acquisitions of DHL Express and Airborne Express. The two air 
carrier contractors were created because of the law that says 
that a foreign-owned company cannot hold a flying certificate 
and operate an airline. So it is different in that respect 
because these two contractors were separate independent 
companies at one point in time. And so by their acquisition, 
these were created.
    So I don't think it is the same relationship between UPS 
and DHL as it is between DHL and ASTAR Air Cargo and ABX Air, 
Inc.
    Secondly, you asked the question about the air park and I 
would like to thank Mr. Mullen because I explained to you about 
receiving the news on the 28th and he did graciously--and I 
want to thank him--give me an audience with him after that 
announcement. And we did discuss at that time the possible 
transfer of the air park. And the community is very interested 
in that. Even if we retain all or part of these jobs, we still 
would like to have that piece because we can then redevelop and 
diversify our economy in the Wilmington area.
    This air park came from the Federal Government to the 
citizens of Wilmington, and I think it should return there. 
Thank you.
    Mr. Chabot. Thank you very much. Mr. Chairman. I yield back 
the balance of my time.
    Mr. Conyers. The Chair recognizes Steve Cohen from Memphis, 
Tennessee.
    Mr. Cohen. Thank you, Mr. Chairman. Captain Prater, you 
made some kind of statement, it really was a question, but I 
guess it was your begging a question statement about the world 
and a company that they have a relationship with. Would you 
explain what you were kind of alluding to, kind of rhetorical?
    Mr. Prater. I believe you're asking about the 49 percent 
investment that DHL has made into Polar Worldwide Air Cargo, 
which is a 747 operator flying air cargo for DHL out of this 
country to Japan and China.
    Mr. Cohen. What is your concern about that?
    Mr. Prater. The concern is when you watch DHL run two of 
their companies into the ground and put their workers on the 
scrap heap, where are they going to go with the next one? I am 
certainly concerned about it. I am not saying it is the same 
kind of system. It is international versus domestic. But the 
fact is they've shown themselves for what they are here. They 
want to get rid of companies they bought, get rid of them out 
of the marketplace completely. There will no longer be an ASTAR 
or ABX who can supply transportation small package services. 
They will be gone. They will be gone and there will not be any 
competitors.
    Mr. Cohen. The only competitor--FedEx would still be a 
competitor, would they not?
    Mr. Prater. If you call working that close as a competitor. 
Now, I know UPS is, obviously from some of their own 
literature, trying to take advantage of the situation that 
their new partner DHL is trying to do and say. DHL customers, 
you can't trust DHL because they are undergoing these big 
problems. They may have potential rate fluctuations, potential 
pickup and delivery. They are no longer a single carrier 
responsibility. Maybe question their customer service.
    On the one hand they are trying to show they are competing 
with them or driving them into the ground. And on the other 
hand they are cutting deals with them. So who are you going to 
believe? What side of--you know, what side of this deal is good 
for anyone, except we have heard DHL. They don't want to take 
care of anybody else but their company. They do have a 
responsibility. They have been doing business in this country 
as a U.S. company, and yet they want to walk away from certain 
responsibilities.
    Mr. Cohen. Mr. Wallace, you heard what Captain Prater said. 
I guess it is really Mr. Mullen. DHL owns 40 percent of Polar; 
is that correct?
    Mr. Mullen. That is correct.
    Mr. Cohen. Is there any grain of a truth to what he is 
saying, that maybe all would kind of not--kind of continue 
Polar?
    Mr. Mullen. Obviously we don't buy companies to try to 
drive them into the ground. We regret more than anybody the 
difficulties that we have had here in the United States. The 
Polar case, we previously used Northwest Airlines for carriage 
across the Pacific. Northwest Airlines itself has gone into 
financial difficulties, as you probably know. That started to 
put intense pressure on the service levels and the security of 
our lift to and from the United States and Asia. As a result, 
we made a strategic decision to invest in Polar in order to 
have some more security over that lift, without which we felt 
that any time Northwest could go into the final stages of 
bankruptcy or other things could happen and we would be left 
with no capabilities whatsoever between the Pacific and the 
United States. That is why we invested in Polar.
    Mr. Cohen. Do you have any intentions, or do you think it 
might be that you want to switch from Polar and switch your 
business to UPS?
    Mr. Mullen. We have not had any discussion with UPS about 
any of that type of intercontinental lift. Polar, we have a 
long-term arrangement with the aircraft. We have committed to a 
very large fixed commitment and we have no such intention at 
the current time.
    Mr. Cohen. So is Polar a successful venture for you?
    Mr. Mullen. Polar was a general cargo carrier when we 
acquired it. The purpose of acquiring it, as I said, is to 
transform it into an express timetable in order to support our 
express business. We will continue to offer some general cargo 
services, but we will change the nature of the company so that 
it supports our intercontinental express business.
    Mr. Cohen. Did you ever consider the same kind of agreement 
that you want to enter into with UPS and considered looking at 
FedEx to do it?
    Mr. Mullen. We have talked off and on with almost every 
player in the United States, trying to find a solution to this.
    Mr. Cohen. And ``every player'' means FedEx and UPS? Is 
there a third?
    Mr. Mullen. FedEx, UPS, the United States Postal Service 
and others.
    Mr. Cohen. Okay. Thank you, Mr. Chairman.
    Mr. Conyers. Bob Goodlatte of Virginia.
    Mr. Issa. Mr. Chairman, with Mr. Goodlatte's permission, I 
will be going next.
    Mr. Conyers. All right. We are delighted to recognize the 
gentleman from California, who has served this Committee with 
such distinction.
    Mr. Issa. I thank the gentleman from Michigan, my 
colleague. And as a former Ohioan and a Member of Congress who 
represents, at least to the south, March Air Force Base, a 
major gate, a DHL facility, I find myself with the same problem 
that the first panel had, portions of the second panel had, and 
many Members on the dais. We are as conflicted as a Congress in 
this situation as any of you at the table. And I say that 
because I would like to be able to say, oh, isn't this going to 
be great? We are going to gain huge efficiency for people who 
get packages delivered, we are going to save money. We are 
talking about our economy and we are not going to lose 13,000 
jobs here, many jobs north of San Diego and my district at 
March Air Force Base. It is all going to be perfect.
    I don't think it is going to be perfect. So let me walk 
through a couple of things that appear to be here because we 
are looking at this as an antitrust task force, but we are 
obviously all looking at it parochially. It seems like 
Wilmington really wants their air base back. They would like to 
keep the job, but they would like to have the alternate 
opportunity and it seems like DHL is willing to participate in 
that in a very aggressive way.
    For DHL you are a global giant, a postal company, a postal 
government company, as I understand it as a parent, and you 
operate, as you said, in 200 nations. If you continue to lose 
$5 million a day, how long before you would have to evacuate--
and this is for Mr. Mullen--how long before you would have to 
evacuate the United States in some way, shape, or form if you 
don't do something?
    Mr. Mullen. We obviously haven't made a specific decision 
on a date or on any particular scenario.
    Mr. Issa. But your pockets do have limits to their depth?
    Mr. Mullen. They most definitely do. And that is the point 
I was trying to make before. Unless we find a way of reducing 
our current level of losses to a manageable level, then we 
would have to take far more radical action. I can't say what 
that would be, but it would obviously be----
    Mr. Issa. And we are all operating in veiled ``what ifs.'' 
But I am concerned for the U.S. economy, but I am also 
concerned for competitiveness, which is the primary thing here. 
If you are able to stem your losses with this alliance, does 
this in general bolster your global ability to compete against 
FedEx and UPS because the rest of the system is comparatively 
less of a problem or at least, let's just say, this makes this 
portion not as much of a problem as it has been; is that 
correct?
    Mr. Mullen. That is correct. We have a----
    Mr. Issa. And you are going to save approximately how much, 
would you guess, not including one-time charges on this 
conversion?
    Mr. Mullen. The UPS arrangement is part of quite a 
complicated restructuring plan with quite a number of other 
components to it, including restructuring ground operations and 
other things. But the total of all of that, we aim to save $1 
billion a year.
    Mr. Issa. Okay. That is $3 million a day, plus or minus. It 
could add up to real money even here in Washington. That is 
supposed to be an applause line, but it is awfully old.
    Mr. Wallace, are you going to make money on this? Is that 
UPS's intention, to make a pretty good chunk of money on 
carrying this vast amount of packages?
    Mr. Wallace. It is our intention to be profitable with 
this, yes.
    Mr. Issa. And the only way for you to do that is in fact to 
increase efficiencies, because you are saving somebody over 
their current level of efficiency, right?
    Mr. Wallace. That is correct. We would be utilizing our 
existing air networking facilities.
    Mr. Issa. And you will add less jobs than are taken away, 
but you will add jobs in this transaction?
    Mr. Wallace. We are still working through the----
    Mr. Issa. There has to be a pilot or two somewhere there.
    Mr. Wallace. We are still working through the details of 
the agreement. So it is difficult at this point for me to 
estimate the number of jobs that could be created.
    Mr. Issa. Right. I am not asking for that. But those jobs 
presumably would be in Ontario, California, Louisville, 
Kentucky. They would be throughout the United States, maybe 
Georgia, wherever you have an operation related to their 
backbone; is that correct?
    Mr. Wallace. That is correct.
    Mr. Issa. So on a net basis, America should be more 
competitive because DHL will be buying a product for less than 
it presently does it itself. You will be making a product that 
will be an efficiency, but jobs will be lost on a net basis if 
you two achieve what you are trying to achieve?
    Mr. Wallace. I can't speak to the total job loss, but 
deficiencies will certainly be improved.
    Mr. Issa. And I am used to efficiencies meaning job losses. 
And Ms. Kaptur looks at that as a bad thing. I am a native 
Clevelander and I also realize that we can't compete if we 
can't be as competitive as the rest of the world in the total 
number of jobs.
    So, since my time is going to expire, with the indulgence 
of the Chairman, very quickly, the question that I really have 
is at the present time between the two parties, conceivably, is 
DHL as a result of this arrangement going to be not a global 
competitor of UPS's? And that is--my real question is, is there 
anything in this arrangement--we realize it is domestic at this 
point. Is there anything that would make your two companies not 
global competitors?
    Mr. Wallace. No, there is not anything I am aware of. We 
will be vigorously competing in the global market.
    Mr. Issa. I am going to tell you in closing, and I will ask 
the others to comment because I don't want to leave them out, 
March Air Force Base is a major commitment of DHL and I expect 
we will lose it to Ontario, if I understand corporate 
restructuring the way it is probably going to happen.
    So after Wilmington, probably Temecula and Paris are the 
next areas that are going to see job losses. So I am not happy 
about that as a parochial matter. What I want to know is--from 
the others--if we look at this based on their assurances, is 
there any reason today that we believe that DHL will not be a 
global competitor of UPS?
    And the reason I ask this for the other people on the panel 
is proprietary information has been batted around, and I am 
very concerned about that. But as long as you are global 
competitors, I am going to assume that your two companies are 
going to make sure that you have that so-called Chinese 
firewall.
    So if the Chairman will indulge me to allow the others--I 
don't want to shut them out, because to be honest, in a perfect 
world, I would rather your side win than the other side. I just 
don't see that as likely at this moment. Yes, sir.
    Mr. Ross. Sir, if I may. We do a lot of flying out of 
Riverside and we appreciate what you have done for that 
facility there. So thank you very much. I know Mr. Mullen has 
mentioned this is the first of the coloading as he refers to, 
globally. So I guess the question would be: Are we going to 
coload with UPS in Europe, UPS in Asia, is it going to be TNT? 
I guess if this is a start of a global coloading, who is the 
rest of the world going to be coloaded with, with DHL?
    Mr. Issa. Yes, sir.
    Mr. Balto. Yes. I just wanted to make, you know, one point. 
The concern from an antitrust perspective is solely that of 
American consumers. And your constituents in San Diego are 
ultimately going to pay more for the--you know, having express 
delivery services. This is not just a problem that can be 
solved just through a Chinese firewall. These two firms will 
now be contented in a symbiotic fashion, unlike the way they 
are now. Are you really going to try to steal sales from your 
supplier? That is highly unlikely if you are very dependent on 
them and if they are sort of in the catbird seat of being able 
to discipline you. My experience as a trial attorney in the 
Antitrust Division, when we uncovered cartel arrangements, 
there often was that element of firms being in the supply 
relationship. That is how they were able to enforce the cartel. 
That is why you have to be very concerned about any kind of 
supply arrangement like this.
    Mr. Issa. Thank you. Thank you, Mr. Chairman, and I look 
forward to looking at the Yahoo situation in the same light, as 
these are important issues.
    On the reauthorization tomorrow, Mr. Chairman, I will 
obviously support the good work that this task force has done. 
I yield back.
    Mr. Conyers. I thank you, Darrell Issa, for your 
contributions this afternoon. The Chair recognizes Bill 
Delahunt of Massachusetts, a Member of this Committee, as well 
as a very effective Member on the Foreign Affairs Committee.
    Mr. Delahunt. I thank you, Mr. Conyers. Mr. Balto, I hear 
what you are saying about the concerns and I agree with that. 
But I think what I have noted since I have been here six terms, 
almost 12 years, is there has to be an effective monitoring 
post for any merger that requires the resources in the 
Antitrust Division of the Department of Justice that simply 
doesn't exist today. And if you'd care to comment on that.
    I am just going to follow up with one other question and it 
deals with this Chinese firewall. But I have always been 
concerned that in Justice there is not sufficient resources to 
adequately reveal the potential or real negative consequences 
for the American consumer. There are just not enough bodies. 
Would you care to comment on that?
    Mr. Balto. That is correct. The Antitrust Division is not a 
regulator. That is why, as a general matter, they strongly 
prefer structural remedies rather than behavioral remedies. If 
given a choice, we prefer--the antitrust agencies would prefer 
firms not to merge if the condition that is necessary is some 
kind of regulatory relief.
    Mr. Delahunt. There are mergers that do occur and for all 
intents and purposes are free from any oversight, free from any 
scrutiny thereafter.
    Mr. Balto. Yes, lots of mergers are procompetitive and pose 
no anticompetitive issues.
    Mr. Delahunt. So I think in terms of this particular task 
force, that is an issue that ought to be looked at. In terms of 
the firewall and the relationship between UPS and DHL--and I 
guess I would direct this to either Mr. Wallace or Mr. Mullen. 
In terms of the sensitive information that is out there about 
pricing and other--I don't know if it is a correct term, but 
``proprietary'' information, how do you construct that 
firewall? How do you maintain that competition, given an 
alliance between yourselves that would create a whole different 
relationship?
    Mr. Mullen. Well, the first thing I would say to that is we 
don't intend to provide sensitive information such as pricing 
at all. So there is no need for a--it just simply won't occur. 
The only data that will be provided is operational data that is 
required by UPS to allow them to physically move the package. 
They don't need access to details on pricing or particular 
customer arrangements or any of those matters that have been 
raised.
    Mr. Delahunt. Mr. Wallace.
    Mr. Wallace. I agree with that. And the only additional 
comment is----
    Mr. Delahunt. How can we be reassured that that is not 
going to happen, I guess, is what I am saying.
    Mr. Wallace. Well, first of all, in the proposed contract 
that we----
    Mr. Delahunt. Particularly given what I noted earlier about 
the lack of resources available in terms of ensuring compliance 
with that kind of an alliance, that kind of a contract.
    Mr. Wallace. Well, UPS structures its business deals to 
ensure that anticompetition is not an issue. I am sure that the 
proposed contract will also address that competitive sensitive 
information very specifically in the contract. We are 
competitors, as we talked about, and even today we are trying 
to compete for additional express business while we are in 
negotiations on this other transaction. Our IT people have 
spent a lot of time looking at what they can do technically and 
mechanically to create that firewall and have spoken with 
confidence that is achievable. The only information that we 
will pass between our organization is the information 
necessary, as Mr. Mullen said, to transport the package and 
move it through our network.
    Mr. Delahunt. Okay. Mr. Conyers, I thank you for the time. 
I have to run to another hearing and I yield back. Thank you.
    Mr. Conyers. Thank you very much. The Chair recognizes Hank 
Johnson, an attorney from Georgia, a magistrate in Atlanta, and 
a very valued Member of this Committee.
    Mr. Johnson. Thank you, Mr. Chairman. How many employees 
are at the Wilmington facility, Mr. Mullen? How many employees 
does DHL employ at the Wilmington facility?
    Mr. Mullen. We employ just over 1,000 ourselves directly. 
All of the other employees belong to subcontractors of----
    Mr. Johnson. I see. So including the subcontractors, how 
many jobs would there be at risk in Wilmington should that 
facility close?
    Mr. Mullen. I obviously don't have all of the details of 
those two companies, but I would answer approximately 10,000.
    Mr. Johnson. And that would take place over what period of 
time?
    Mr. Mullen. We are still discussing that as part of the 
implementation phasing that is being negotiated as part of the 
contract at the moment. But most likely by the middle of next 
year.
    Mr. Johnson. Does anyone dispute the assertion that DHL's 
expected loss of $1.3 billion in 2008 is accurate? Does anybody 
dispute that?
    Mr. Fisher. We don't dispute that is a loss. We don't have 
any basis for determining whether or not that amount is 
accurate.
    Mr. Johnson. Nor have any reason to doubt that it is 
accurate, do you?
    Mr. Fisher. I think that is as far as I will go. We just 
have no way to verify one way or the other.
    Mr. Johnson. Let me ask, how has the price of jet fuel 
impacted the package delivery industry?
    Mr. Mullen. It has impacted us very significantly. It has 
impacted us in a number of different ways as well. Firstly, 
obviously, it increases your cost quite materially. Our whole 
industry, much of the passenger airline, industry was built 
around oil prices of sort of 20, $30 a barrel. We survived the 
passage up to the eighties and nineties. And once it got into--
over the 100's, as we are seeing now, it is a complete shift of 
business model for our industry. So it is putting huge pressure 
on us from an operational cost point of view.
    The other thing it is doing, which is equally significant 
and potentially more significant in the long run, that it is 
changing our customers buying behavior. So in a market, 
particularly an integrated market like the United States, one 
of the main reasons why the air market has been shrinking and 
continues to shrink is because customers migrate from more 
expensive air products to deferred ground products. They simply 
can't afford the cost of the express transport any more.
    Furthermore, we see on the global scale that that is 
starting to affect even supply chains of some of our customers. 
So one byproduct of this may well be that you see companies who 
outsource capacity production to the Far East, to China, may 
start to bring that back closer to home, either to her market 
itself, or in the case of the United States maybe Central 
America or whatever. In Europe we see our customers shifting 
capacity production back to eastern Europe and other closer 
locations. So it is having a pretty dramatic effect on our 
industry aboard.
    Mr. Johnson. Mr. Fisher and Mr. Raizk, even though there 
may be some reluctance to accept this $1.3 billion loss 
assertion, assuming that it is true that the company is losing 
$1.3 billion a year, would the State or local government be 
able to offer any economic incentives that would cancel out 
that loss on a yearly basis?
    Mr. Fisher. Congressman Johnson, I think that when we face 
situations like this, it is not so much that the State says we 
will cancel your losses out, it says that we will partner with 
you to address your losses. A combination of loans, grants, tax 
credits, processes that we can offer to the company free of 
charge with regard to distribution and logistics, additional 
ways that we can help facilitate transactions like the one that 
they pursued several years ago, where I believe ASTAR attempted 
to purchase ABX, so that they would have one carrier they could 
deal with as opposed to two.
    Those are all roles that we could, and frankly want to, 
play in trying to address these transactions. So the answer is 
I don't know whether we could cancel out, as you say, all of 
their losses. What I do know is that we could help address 
those losses, alleviate them both short term and long term in a 
partnership arrangement. It wouldn't be the first time that our 
State has done something like that.
    Mr. Johnson. Well, I tell you, 10,000 jobs over the next 9 
or 10 months is certainly a devastating blow to any State's 
economy. How can DHL and UPS work together to accomplish your 
objective, but at the same time save jobs in Ohio? And I have 
just got to believe there is some way for you all to do that. 
How could it be done?
    Mr. Mullen. Congressman Johnson, the leverage that this 
arrangement has is the utilization of capacity that exists in 
the existing UPS network. Were we simply to transfer all of the 
jobs from one party to the other, we would not obviously be 
addressing the ongoing loss that we have been talking about. 
And the reason that UPS can offer us an arrangement like this 
is they have some spare capacity which we want to obviously 
avail ourselves of.
    So it is very hard. Their hub is in a different location 
than our hub. Their operation runs different from ours. And I 
am not privy, obviously, to how they manage the details of that 
operation, but it is not simply a question of being able to 
transfer the jobs with the work, I regret.
    Mr. Johnson. Any response from UPS?
    Mr. Wallace. Any loss of jobs in the U.S. Is very 
unfortunate. And, as Mr. Mullen spoke to, our capabilities and 
our network at UPS are designed as such that we have the 
capability through our regional air hub network to add more 
volume into that system. By adding that volume into those 
strategic locations, we will eventually create jobs. At this 
time, we don't know what the number of jobs will be or exactly 
what the jobs will consist of. But clearly we will create jobs 
in those locations. Our primary air hub location, Louisville, 
Kentucky, which is not that far from Wilmington, Ohio, but 
there would be no opportunity for us to leverage the 
Wilmington, Ohio facility in our network.
    Mr. Johnson. Thank you. Mr. Chairman, I yield back.
    Mr. Conyers. Thank you. Attorney Congresswoman Betty 
Sutton, distinguished Member of the Rules Committee and 
Judiciary.
    Ms. Sutton. Thank you, Mr. Chairman. And thank you all for 
being here to testify, Lieutenant Governor Fisher, Mayor, all 
of you. I appreciate this information coming to light.
    Mr. Mullen, I have heard you on that--about how there were 
no options but to cut costs, and we have heard the extent of 
that need as you express it. And that you looked at every 
alternative before you proceeded down this path. But we have 
also heard testimony from people on the panel, and Lieutenant 
Governor, talking about how they never had the opportunity, the 
State of Ohio really didn't have the opportunity, you didn't go 
to them to talk about how there might be another path.
    We also heard from Captain Ross and Captain Prater. We 
heard from Captain Ross that he was never approached about 
reducing costs. And Captain Prater in his written testimony 
talked about during the negotiations between UPS and Deutsche 
Post, they were entered into in secret and that neither ABX or 
ASTAR were given a chance to make competitive bids.
    So if the ultimate goal was cost savings on all of this, 
please respond to those lapses in effort. Because why didn't 
DHL, for example, negotiate with all parties to obtain the best 
deal possible? Why didn't DHL, after all the State of Ohio has 
done to try to be a partner, go back to the State of Ohio and 
talk to them about what might be able to be done? Why didn't 
DHL talk to Labor about how to potentially cut costs?
    And now if I understand correctly, and I would like you to 
address this too, after all of that and the failure to even 
bother to do any of those things, you have now bound yourself 
with the confidentiality agreement that will protect you from 
having to answer a lot of these questions. Could you just 
respond to that?
    Mr. Mullen. Of course I can, Congresswoman Sutton.
    Firstly, with respect to the State of Ohio, we looked at 
all of the options that we felt could realistically deliver the 
scale of savings that we needed. We are talking here about 
hundreds and hundreds of millions of dollars. Yes, we did not 
go and sit down with the representatives of the State of Ohio 
and say, can you save us a billion dollars? We generally 
thought that was pretty unlikely, and given confidentiality, 
our customer base, employees, et cetera, we ruled that out as a 
likely alternative.
    With respect to our other subcontractors, that is not the 
case; we had extensive discussions with ABX and ASTAR trying to 
find a solution to this. There was one solution that would have 
offered considerable savings, which is where ASTAR would have 
acquired ABX; we would have put the two businesses under 
ASTAR's management combined, would have been combined. That 
would have saved quite a lot of money. That option was not 
driven directly by us, because ASTAR, obviously, is an 
independent company. They launched public takeover bid for ABX 
that was rejected by ABX directors. That opportunity was closed 
off.
    We subsequently had a reverse type discussion where ABX 
came to us with a proposal. I personally met with some of the 
senior management of the company in Germany. We followed that 
up with several discussions here in the United States. And 
while that was an attractive offer, it came nowhere near as 
close to the level of scale of savings that we think we can 
generate from the combined proposal that we now are looking at. 
So we really did talk to all of the other parties.
    We didn't talk directly to labor. The gentlemen on my left 
are not employed by DHL; they are employed by our 
subcontractors. It's not our prerogative to directly go to the 
labor directly. We do talk to the direct employers about how we 
can generate such savings.
    I think we exhausted every option that we could see that 
had a material leverage in solving this problem.
    Ms. Sutton. Okay, I tend to disagree, but I appreciate your 
response.
    Since your competitor at UPS is going to sort the packages, 
isn't it the case that you will then have to shutdown many of 
your sort facilities across the country under the 
restructuring?
    Mr. Mullen. We only have two real air hubs in the United 
States. One is in Wilmington. The other one is Riverside in 
California.
    Ms. Sutton. Okay, let me just ask this question a different 
way. How many jobs, direct DHL jobs and otherwise, will be 
affected by this in terms of loss? Can you give this Committee 
a complete list of the jobs that could be affected by this 
restructuring plan?
    Mr. Mullen. I can't give you a precise number because the 
process is that we terminate a contract with our subcontractor, 
and that subcontractor in turn then decides how many 
redundancies it makes amongst its workforce. For instance, in 
ABX's case, I can't speak for them clearly, but I am aware that 
they intend to continue in business. They intend to continue 
employing pilots and other employees. So we are working with 
them. I think I mentioned in my statement, on the mitigation 
package, although we are not contractually obliged in ABX's 
case, for instance, with air crew to offer severance payments--
that is the responsibility of the subcontractor ABX--we are 
more than willing to offer that as part of the mitigation.
    I realize you want some numbers. My best understanding of 
the impact is somewhere in the 8,000 to 10,000 jobs that are at 
risk across our own direct employees and the majority being 
employees of other subcontractors, but you would have to speak 
to each of those directly to get a precise number.
    Ms. Sutton. You are talking about Wilmington only?
    Mr. Mullen. Well, we are doing a whole number of things. We 
have been closing some of our ground stations in remoter areas 
in the country, restructuring pick up and delivery routes and 
consolidating stations. In some cities, we maybe have three 
stations and are consolidating that down to two. And we are 
replacing the two airline subcontractors with one being UPS. So 
it is a number of different components.
    Ms. Sutton. Since no one responded to Mr. Balto's question 
about voluntarily entering into an investigation under DOJ, 
will you answer it for me? You said you are very confident it 
is not a merger, very confident. So why don't you enter into a 
voluntary investigation with DOJ?
    Mr. Mullen. Well, firstly, we obviously got extensive 
advice when this idea was first mooted and have been informed 
very comprehensively there is not an antitrust issue. Despite 
that we voluntarily did go to the Department of Justice and 
informed them about this. But up until we are told we cannot 
complete it or are prevented from doing so, there is no reason 
for us not to. The Department is aware.
    Obviously, from our perspective, the counterbalance is that 
employees and customers and other stakeholders are very 
unsettled by all of this, and it behoves us to complete the 
transaction as fast as we can. Should the Department see 
otherwise, then of course we would cooperate fully in whatever 
investigation they chose to launch.
    Ms. Sutton. Since, sort of in your answer there, I heard a 
hint of you weren't really--you weren't really asked. Let me 
ask you directly, will you enter into a voluntary investigation 
with DOJ?
    Mr. Mullen. Well----
    Ms. Sutton. Are you willing to?
    Mr. Mullen. We have already spoken to----
    Ms. Sutton. I understand.
    Mr. Mullen. We can't launch an investigation on ourselves. 
We have provided all the information. Anything that they wish 
to know about the transaction, we will provide of course, 
voluntarily.
    Ms. Sutton. So you don't really object to the idea of 
undergoing a voluntary investigation? You don't object to that?
    Mr. Mullen. No. We obviously have to follow the rule of the 
law.
    Ms. Sutton. I understand.
    Mr. Mullen. Whatever the Department of Justice requires us 
to do, we will obviously do. Until such time as they rule one 
way or another or oblige us to do something, we will continue 
as we are.
    Ms. Sutton. I understood your answer.
    Would anybody else like to respond?
    Mr. Balto. I just hope it is clear from Mr. Mullen's 
answer. You know, what companies frequently do is they enter 
into an agreement with the agencies not to consummate the deal 
until the agency has completed its investigation, is that what 
you are promising to do?
    Mr. Mullen. Mr. Chairman, should I respond? No, if I can 
try to be more precise. We are and will continue to cooperate 
with the Department of Justice in any shape or form or any way 
that the Department requires. We will provide any information. 
We will cooperate with any request that they place upon us.
    To date, they have not asked us to do anything other than 
continue with--that would prevent us from continuing with this 
transaction. As and when they do so, then of course, we would 
respect that. But failing that, we will continue to try to 
conclude as fast as we can.
    Ms. Sutton. I thank the chairman for the time. And I would 
just encourage the consideration of this Committee to do all 
that it can do to get the Department of Justice to look into 
this de facto merger, and obviously, they are willing to 
undergo it if we can get the Department of Justice to take on 
the responsibility that is its responsibility.
    Thank you.
    Mr. Conyers. Well, it occurred to us, Congresswoman Sutton, 
that there might be an agreement between them to have a 
temporary suspension because the work of this Committee cannot 
be considered concluded at the end of this hearing.
    Congressman Brad Sherman has come in. I am going to 
recognize him in a few minutes.
    But the fact of the matter is, we need to go, quite 
frankly, a lot deeper into this than we have. There are some 
documents that occur to our lawyers on the staff and there 
are--there's some additional testimony that it seems that I--
that we would feel more comfortable with in trying to determine 
what happens.
    If we had another hearing and brought in further 
authorities involved in the kinds of questions that have been 
presented here today, we want to go through this transcript 
with great care. And so it occurs to me, piggybacking off your 
solution, if we could hold all this in abeyance, I think there 
is a lot of discussion that could be entered into between the 
seven parties that constitute the witnesses, not to mention the 
five other legislators from Ohio. I mean, we would like nothing 
better than to get you all in a room with appropriate 
refreshments and John Coltrane in the background, and let's 
just sit down and put this on the table.
    You don't have to read your testimony, which is very 
brilliantly contrived and will go into the record. But, I mean, 
let's get down on the ground with this, because I think, I 
mean, there has been some very strong expressions from the 
Lieutenant Governor representing the State of Ohio, the mayor 
and from all of you.
    We can all leave here saying we got a little bit off our 
chest, which is always therapeutic, but that doesn't change the 
nature of what brought us here in the first place. And I think, 
in view of the fact that we have got to have more hearings, I 
would like to try to see if there could be some consensus about 
holding this in abeyance until such time as we at least have 
one more hearing.
    Now we have yet to hear from the Department of Justice, the 
Antitrust Division. There are a number of other people that 
could help us see where we are here. Now this is a real crisis 
that attacks many other areas of our country just in a 
different form. It is not the same kind of business or 
anything, but the whole country, many parts of our Nation, are 
under the same stress.
    Now, that being the case, I would like to hope that we 
could, without being formal about it, get you parties before 
the Judiciary Committee. We made an excellent start at sitting 
around the table today, and I applaud you. There has been no 
personality problems or vindictiveness. There are clearly 
distinct differences of opinion, but that is what brings us 
here. That is what the legislature is for. If there were any 
differences of opinion, there would be no hearing. If there 
were a lot of no hearings, there would be no Judiciary 
Committee. I mean, that is what we do.
    So I would recommend that all of the parties that have 
honored us with their presence today give that some thought.
    And I thank the Congresswoman from Ohio for putting that on 
the table.
    And I would like to turn now to our distinguished colleague 
from California, Brad Sherman.
    Mr. Sherman. Thank you.
    Mr. Mullen, perhaps you could describe for me a little bit 
your hub in Riverside, California. Is it served by the Ontario 
airport, and is it that close to the airport, and how many jobs 
you got there?
    Mr. Mullen. I don't have all the details about Riverside to 
hand. I can provide you those afterwards in writing if you 
would like. But what I can tell you is that it is our West 
Coast aviation hub. It has about seven or eight aircraft that 
service deliveries that are made between the States west of the 
Rockies, so as to avoid packages to move from, say, San 
Francisco all the way back to Wilmington and then back again to 
Los Angeles. That is the purpose that it fulfills.
    Mr. Sherman. Is it your tendency to have your sorting hubs 
within a mile of a major airport, because Riverside is not all 
that close to a major airport?
    Mr. Mullen. No, it is on March Air Force Base, and we have 
our sorting facility on the airport itself.
    Mr. Sherman. So your planes land at the Air Force Base.
    Mr. Mullen. It used to be an Air Force Base. I don't know--
--
    Mr. Sherman. So there is a lesser known airport that is--
and your facility in Ohio, is that located close to 
Wilmington----
    Mr. Mullen. The facility in Wilmington, Ohio, is our main 
sort center. That is where we own the airport ourselves, and it 
solely operates for our two subcontractors.
    Mr. Sherman. We have focused on the 8,000 or so jobs that 
are in the transportation industry to the delegation of Ohio. 
And because that has been covered so much, I want to focus not 
on the jobs in the transportation industry but the jobs and the 
economic effect on your customers, because there are a lot of 
businesses that have located near your hub because their 
business plan required them to be at a major transportation 
hub. These folks may be in the warehousing business. These 
folks may operate repair facilities, and so people have to ship 
stuff that is broken, and obviously they need it back as 
quickly as possible; they want it repaired as quickly as 
possible. What effect would this non-merger agreement have on 
your customers in the greater Wilmington area? How--would 
either the amount you charge them be affected because they are 
no longer at your hub, or how much lower would their service 
be?
    Mr. Mullen. Firstly, in that context, what is so really 
difficult and distressing about this whole situation is that 
all of the stakeholder groups, from customers to the community 
and to the employee groups, have been outstanding supporters 
and partners. I could not have asked any more from the State 
and from the local community. And we couldn't ask for better 
cooperation than we have with Captain Ross and some of his 
colleagues there who have been simply outstanding employees. 
That makes it, as you can imagine, extremely, extremely 
difficult.
    In the case of customers, it is exactly the same. We have 
some very long-standing and good customers who will be affected 
by this. We are negotiating individually with the customers 
that will be directly impacted around the airpark. For some, it 
shouldn't be too much of a problem because they will be able to 
truck to Louisville in time, but for others, it will be a major 
problem, and they are going to have to make decisions----
    Mr. Sherman. Well, let's say somebody used to truck from 
your facility in Wilmington, and that was a 1 or 2 mile truck 
to transportation, and now they are trucking from Lexington. 
Not only is that a delay, but let's focus on the cost. Are they 
going to end up being out-of-pocket for the transportation cost 
from Lexington to the greater Wilmington area?
    Mr. Mullen. Well, clearly, I don't know what new 
arrangements those companies will have to make, but I think it 
is safe to say it is unlikely to be favorable.
    Mr. Sherman. So you're not--obviously, if somebody happens 
to be in Lexington already and for some reason wants to use 
DHL--they might have used UPS in the past, and of course UPS is 
creating more competition for themselves in the Lexington 
area--they are going to get the fastest and cheapest DHL 
transportation because they are right there at your hub. People 
who located their businesses or built their businesses around 
the Wilmington area, you are not prepared to say that you are 
going to do anything for them other than negotiate at arm's 
length.
    Mr. Mullen. Well, as part of the total mitigation plan that 
we are working on, there are three components. I think I 
mentioned, one is to be as generous as we can in terms of 
severance.
    Mr. Sherman. And that you have quantified in the quarter 
billion dollar range.
    Mr. Mullen. The second component is to try to work with 
local community and businesses that are affected by this 
decision. Individual cases is different, and we haven't yet 
made any----
    Mr. Sherman. So you have quantified what you are going to 
do for the employees and the employees of your subcontractors, 
but you have given me only the vaguest comments as to what you 
are going to do for your customers, other than of course 
negotiate with them at arm's length. Can you quantify your 
reassurance, other than the fact that you love and respect your 
customers and want to help them in every way possible?
    Mr. Mullen. Obviously, we would like to keep the customers 
where we can. And we will do everything in our power to do 
that. If we can help them reorganize the supply chain sources 
or manufacture elsewhere or whatever it is. Every one is 
different, so there is no blanket answer to that. Some will 
undoubtedly----
    Mr. Sherman. Have you--you have budgeted a quarter billion 
dollars for the employees of yourself and your subcontractors. 
How much have you budgeted to help to cut costs for, to give 
cost breaks to, to provide free trucking transportation to or 
whatever? Is there anything in your budget to mitigate the 
effect this has on your customers?
    Mr. Mullen. We have not budgeted any specific amount.
    Mr. Sherman. We have a quarter billion for the employees 
and 0.0 for the affected businesses. I hope you revise this 
budget. You know, you are transportation, you have a huge 
ripple effect, and you cannot draw a line in your mitigation 
and say, well, our employees, the employees of our 
subcontractors are affected, but the businesses and the 
employees of the businesses of our customers who have built 
their business around the fact that you have got a hub there. 
You have invited them there. You have given them lower 
transportation costs and faster transportation to be there. 
That is why they are there. And you have got a budget that, as 
far as I can tell, is 0.0 but includes warm words to help those 
customers who have been your customers, your partners, 
whatever, who have built their businesses in this area. And it 
sounds like they are going to have to move--we are not talking 
8,000 jobs; they are going to have to move 80,000 jobs to 
Lexington or to the hub of yourself or one of your competitors 
in order to enjoy the transportation speed and the 
transportation cost that they are used to. What can you do to 
quantify for me what you are going to do for your customers?
    Mr. Mullen. As I said, we have to sit down with those 
directly affected around the airpark.
    Mr. Sherman. I assume there will be Coltrane music at those 
meetings as well, and maybe the Chairman can suggest other 
ambiance enhancing aspects at the meeting. You will sit down 
with them.
    Other than that, can you quantify? I see the Lieutenant 
Governor here, and I know he's focused on the 8,000 jobs, and 
maybe it is 10, maybe it is 12, maybe it is 15, in the 
transportation industry, but you have got the warehousing 
industry. You have got the repair industry. You may be talking 
about a much bigger economic impact. And I realize these 
companies, the transportation jobs, they are going to go if 
this thing goes forward. The warehousing jobs, et cetera, 
everything is just going to be under strain. The transportation 
costs of these other businesses will go up 5, 10, 20 percent. 
And maybe they will survive and be able to stay where they are; 
maybe they won't. But I would sure feel an awful lot better if, 
in designing your mitigation plan, you had more in it for these 
customers of yours who are located at your hub and did so 
because you are there than, we are going to sit down with them, 
and there will be Coltrane music.
    Mr. Mullen. We have quantified the direct impact on labor 
and on the contractual obligations we have with our 
subcontractors, that is why I am able to quote a number. We 
have not quantified the impact on other parts of the community, 
like local businesses, et cetera, et cetera. We are working on 
that, but I am not able as a result to give you----
    Mr. Sherman. What can DHL afford to do to mitigate? I mean, 
you are under some economic strain here. You are able to afford 
a quarter billion dollars for the employees in the 
transportation industry. What can you afford to do for your hub 
adjacent customers?
    Mr. Mullen. I generally don't know, sir. We will have to 
find out exactly the scale of and who and how much people are 
affected.
    Mr. Sherman. I am not asking you what the effect is or what 
they deserve. It could be you calculate it all, and the trucks 
are moving fast and cheap from Lexington, and the total cost is 
a million bucks and why is Sherman even talking about it. 
Putting aside what the cost is to your customers, how much 
mitigation could you afford for them, assuming that their needs 
for mitigation tend to be pretty high?
    Mr. Conyers. Could the gentleman yield to the gentlelady 
from Ohio for one final question?
    Mr. Sherman. I would be thrilled to yield to the gentlelady 
from Ohio.
    Ms. Sutton. Thank you.
    Thank you, Mr. Sherman.
    Mr. Chairman, this discussion, as I said, has been 
extraordinarily enlightening, and I would just like because we 
have sort of talked about the complexities, the far-reaching 
implications; some of the things that have been explored but 
that there are many things that may have not been explored by 
way of solutions. And I really just want to ask our Lieutenant 
Governor, who we are so grateful to have here today, whether in 
light of all this, are there any solutions that we may not have 
talked about that you might want to bring forward?
    Mr. Fisher. Mr. Chairman, Congresswoman Sutton, I do think 
there is one solution that has not been yet discussed today 
that is worth putting on the table. I think it is fair to say 
that those of us who believe that there are antitrust 
implications of this really have two objectives, not one. We 
don't stop at our legal objective, because that, frankly, would 
not be particularly effective. We are trying to do two things; 
we are trying preserve and enhance competition in this market, 
and we are trying to preserve and enhance the jobs in southwest 
Ohio.
    There may be a way to do both, and that would go back to 
what DHL originally tried to do several years ago when it tried 
to have a single airline serving DHL from their hub. It is 
understandable that when DHL cannot own its own airline because 
of Federal law and it has to contract with two different 
airlines, ABX and ASTAR, that does cause some efficiency 
problems for DHL and some cost problems. And DHL, I think, by 
its own admission at least at one point in time had come to the 
conclusion that the way to solve their financial problems was 
to have ASTAR, in which they have a 49 percent interest, to 
acquire ABX and thereby having one air carrier to deal with.
    So it seems to me that there are two potential solutions 
here that only DHL themselves can really speak to, but this is 
from my standpoint. The one is to go back to the original kind 
of transaction that DHL at one time felt could solve its 
problems and explore whether or not a similar such transaction 
at this point in time could address, if not all of their 
challenges, many of them. Because one of the things that DHL 
consistently said to us and others is that they have 
substantial overhead costs that UPS and FedEx do not have, 
because UPS and FedEx own their own airlines.
    The second issue is well above my pay grade, but I throw it 
up here anyway and that is re-exploring or re-examining the 
whole issue about whether DHL should be able to get some sort 
of narrow waiver so that they could own their own airlines and 
be able to truly compete with UPS and FedEx. I don't know how 
UPS and FedEx would feel about it, but my guess is that they 
would oppose it. And if they did, that would be proof that it 
would promote competition. So I would suggest that might be one 
way to solve this problem. We keep the jobs in Ohio. DHL would 
not have one hand tied behind its back, maybe even two hands 
because of a Federal law that I don't think they are happy 
about, and we could carve out an exception and save 13,000 jobs 
and in the process enhance competition in the market for now 
and in the future.
    Mr. Conyers. You know, we have enjoyed the Lieutenant 
Governor so much, I hope you bring back our own colleague from 
the House, Governor Strickland.
    Mr. Fisher. I think I can arrange that.
    Mr. Conyers. I think you can. For our next hearing. So I 
want to thank everyone for their participation. I hope that you 
will carefully examine the thoughts that have been exchanged, 
and we look forward to you, if not being on the panel next 
time, that you would follow these hearings as closely and as 
much as you have contributed to them today.
    Ms. Jackson Lee. Mr. Chairman.
    Mr. Chabot. I would ask unanimous consent that the Members 
of the Committee have the requisite number of days put in the 
record either opening statements or other documents.
    Mr. Conyers. Without objection, so ordered.
    Ms. Jackson Lee. Mr. Chairman.
    Mr. Conyers. The gentlelady from Texas, Sheila Jackson Lee.
    Ms. Jackson Lee. Mr. Chairman, I will simply put a very 
brief statement on the record. I know you are closing and just 
to acknowledge that I just came from chairing a hearing on 
transportation security, so I want to emphasize to the 
witnesses that I will submit questions for the record, but I do 
want to emphasize inasmuch as I have a sizable component of UPS 
in my constituency, that the reason for being for this 
Committee is they are all committed to oppose anti-competitive 
actions. I want these jobs to be kept in Ohio. And if it takes 
your solution, Mr. Lieutenant Governor, I will work with you 
and your esteemed Members of this Committee, but if it takes a 
Department of Justice investigation, I will likewise support 
that because we must support jobs, and we must void the 
monopolistic, if you will, sense of this particular industry. 
And I know DHL wants to work through this as well.
    Mr. Chairman, I yield back, put my statement in the record 
and my questions. Thank you.
    [The prepared statement of Ms. Jackson Lee follows:]
        Prepared Statement of the Honorable Sheila Jackson Lee, 
          a Representative in Congress from the State of Texas
    Mr. Chairman, thank you for your leadership in convening today's 
very legislative hearing on competition in the package delivery 
industry. Welcome to our distinguished panelists.
    The purpose of this hearing is to examine the state of competition 
in the domestic package delivery industry. The package delivery 
industry (the domestic market for the transportation and delivery of 
packages, parcels, and certain types of mail) has both an air and 
ground transportation component. Virtually all air transportation falls 
within the segment of the industry known as ``express delivery,'' in 
which 1- or 2-day package delivery is guaranteed.
    Since 2000, the package delivery market has become increasingly 
concentrated. As a result of the acquisition of Emery Worldwide by UPS 
and Airborne Express by DHL, the number of market participants has 
dwindled from 6 to 4: FedEx, UPS, U.S. Postal Service (USPS), and DHL. 
Currently, USPS outsources ``lift'' (airport to airport air 
transportation) for its express delivery service to FedEx, UPS, and 
ABX.
    Recently, DHL announced plans to enter into a 10-year deal to 
outsource all of its lift to UPS. This would result in the critical 
component of DHL's most lucrative business segment being controlled by 
one of its competitors. In addition, the proposed agreement would 
concentrate lift for the express delivery segment of the package 
delivery industry into the hands of two companies: FedEx and UPS.
    The package delivery industry refers to the domestic market for the 
pick-up, transportation, and delivery of packages, parcels, and certain 
types of mail. Within the package delivery market are two components: 
ground transport and air transport, also known as ``lift.'' A subset of 
the package delivery market is the ``express delivery'' market, 
encompassing those delivery services requiring lift. Those services 
typically include guaranteed next-day and two-day delivery. 
Historically, the express delivery market has represented between 60 
and 65% of the package delivery market. It should be noted that 
although USPS has a virtual monopoly in the mail market, it is also a 
competitor in the express delivery market.
    By 2000, the domestic package delivery market was divided among six 
companies: USPS, FedEx, UPS, Emery Worldwide, DHL, and Airborne 
Express. DHL acquired Airborne Express in 2003 and UPS acquired Emery 
Worldwide in 2004. After the UPS-Emery Worldwide deal, there were only 
four major competitors left: USPS, FedEx, UPS, and DHL.
    As of 2007, the domestic package delivery industry earned annual 
revenues of $32.8 billion for an average volume of 6.644 million 
shipments per day. For 2007, the domestic package delivery market was 
divided as follows, by market share and revenue:

        FedEx--42.7% ($14.02 billion)

        UPS--32.3% ($10.60 billion)

        DHL--8.5% ($2.8 billion)

        USPS--2.9% ($950 million)

        Other--13.5% ($4.45 billion)

    The express delivery segment of the market was even more 
concentrated in 2007, with FedEx and UPS combined controlling 81 
percent and DHL controlling another 15 percent. Between 2003 and 2007, 
FedEx's share of the express delivery segment grew by 10.3% and UPS' 
share grew by 11.2%, while DHL's traffic fell by almost 27%.
    In 2000, the package delivery industry was divided among six 
competitors: USPS, FedEx, UPS, DHL, Emery Worldwide, and Airborne 
Express.
    In 2003, DHL acquired Airborne Express, and with it, ownership of 
the Wilmington Air Park, a regional cargo freight hub located in 
Wilmington, Ohio. In 2004, DHL announced its intention to invest more 
than $300 million in expanding the Wilmington facility. Also that year, 
Emery Worldwide's successor company, Menlo Worldwide Forwarding, was 
acquired by UPS.
    In 2007, Germany's Deutsche Post AG, the owner of DHL, posted a $1 
billion loss in DHL's U.S. business, DHL Express. In an interview with 
the New York Times, DHL Express' CEO, John Mullen, cited rising fuel 
costs and attendant fuel surcharges as factors in depressing the demand 
for the more lucrative express delivery service and pushing more volume 
to ground delivery. He further speculated that this consumer shift may 
be permanent. Deutsche Post AG projected a loss of $1.3 billion in DHL 
Express' operations for 2008. However, Deutsche Post continued to 
maintain that the U.S. market was a ``vital'' part of DHL's U.S. 
operations and that ``pullout [was] not an option.''
    On May 28, 2008, Deutsche Post announced a reorganization plan for 
DHL Express. As part of the plan, DHL Express would terminate its lift 
contracts with ABX and ASTAR and move its air transportation 
requirements to competitor UPS for all domestic shipments.
    The contract would have a duration of 10 years, at a cost of 
approximately $1 billion per annum. Sorting operations for air 
transportation would be moved from the Wilmington, OH hub, to UPS' 
Louisville, KY hub. In public statements, management for DHL and 
Deutsche Post AG anticipated that the overall restructuring plan, of 
which outsourcing to UPS is a major component, would result in 
approximately $1 billion in annual savings. By some estimates, however, 
shuttering the Wilmington facility would eliminate more than 8,000 
local jobs.
    Although management for DHL hopes to have the agreement in effect 
sometime in 2009, there is currently no agreement in place.
    It is against this backdrop that we invite today's witnesses to 
discuss anticompetitive practice in the package delivery industry. I 
look forward to the insightful testimony of the witnesses and welcome 
their testimony.
    Thank you, Mr. Chairman, I yield the balance of my time.

    Mr. Conyers. Thank you very much, Madam. We will also add 
the statement of Senator Barack Obama, who has submitted a 
statement for the record for this hearing. With that, we close 
the hearing and thank everybody very, very deeply for their 
attendance.
    [The prepared statement of Mr. Obama follows:]
 Prepared Statement of the Honorable Barack Obama, a U.S. Senator from 
                         the State of Illinois




    [Whereupon, at 5:51 p.m., the Committee was adjourned.]

                                 
